Important Disclosures Found in Appendix

AEROSPACE SUPPLY CHAIN REVIEW

A First Class Look At The he Most Important Issues For The Specialty Material & Forging Markets A Bi-Monthly Monthly Update Report September 12, 2013
1.

The AIRLINE INDUSTRY travel & capacity data has been more favorable over the past few months, showing relative strength since January. However, the overall global industry data points for July were somewhat disappointing versus the previous 2-3 months. Total otal revenue passenger miles (RPM) growth was reported @ +5.0% Our TITANIUM contacts have reported shipment levels (and order entry rates) running in in-line line with expectations. The overall order entry rate is estimated @ +1 +1-2%, which is steady with our 2Q results esults (1Q was @ +2-3%). +2 Market pricing still remains exceptionally weak for the upstream markets heading into 2014 contract negotiations. The NICKEL-BASED BASED ALLOY checks came out more positive. We estimate the 3Q growth @ +1% versus a down 1% comp for 2Q. The relative strength has been generated by renewed growth in service centers, energy, and power generation demand rather than changes to the jet engine landscape. We came away from our new AEROSPACE FASTENERS update with a generally favorable view on o underlying market fundamentals. The data points surrounding demand, full full-year year expectations, lead times, and inventory all suggest the industry will likely benefit from an accelerated period of demand in 2H13 and 2014, with increasing pricing power. We estimate current demand @ +8-10% 10% versus +7 +7-9% in 1H. We did not make any changes to our AEROSPACE DELIVERY forecasts, but the data points collected throughout our work suggest there could be upside to the production outlook between 2016 & 2017. Specifically, Specifica we are focused on the growing probability for Boeing (BA) to raise its 737 delivery targets in order to facilitate the strong demand for the MAXMAX designs. Our industry model suggests real commercial aerospace demand growth is @ +6 +6-7% 7% for 2013.
Aerospace Materials Peer Group - Recent Stock Movement
Earnings Changes 30 Day Chg. 3 Month Chg.

2.

3.

4.

5.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Company Universal Stainless & Alloy Heico Corp. Kaiser Aluminum Precision Castparts Carpenter Technology Boeing Wesco Aircraft Holdings Hexcel Corp Allegheny Technologies RTI International Metals S&P 500 EADS B/E Aerospace Alcoa Triumph Group A.M. Castle Cytec Industries Spirit Aerosystems Average

Ticker USAP HEI KALU PCP CRS BA WAIR HXL ATI RTI SP50 EAD-PAR BEAV AA TGI CAS CYT SPR

Price

Mkt Cap ($000)

$31.99 $64.49 $71.45 $228.63 $57.39 $109.23 $20.61 $37.35 $29.21 $32.19 $1,689 $46.01 $73.31 $8.19 $75.50 $16.19 $77.64 $23.97

224 3,424 1,337 33,274 3,035 82,408 1,941 3,716 3,153 1,009 35,806 7,682 8,760 3,927 378 2,833 3,467
11,551

17% 9% 8% 5% 4% 4% 2% 2% 1% 0% 0% 0% 0% 0% -2% -3% -3% -4%

2%

-16% 78% 23% 43% 10% 53% 47% 60% -12% 38% 18% 61% 86% -12% 27% 26% 16% -4%
30%

Industries Nickel-Alloys Jet Engine Replacement Parts Aluminum Forging & Special Metals Nickel-Alloys OEM Aerospace Distribution Composites Forging & Special Metals Titanium Index Parent of Airbus - OEM Interiors & Fasteners Aluminum Forging Specialty Distribution Composites Tier 1 Aerospace

Current -59% 3% -5% -1% -5% 1% 0% 1% -73% -21% -1% 1% -30% 0% 94% 4% -83% -10%

Out Year -27% 2% -1% 0% -2% 0% 2% 1% -37% -4% -2% 2% -26% 0% -14% 6% 3% -6%

AERO SUPPLY

Aerospace Supply Channel Update Report

September 12, 2013 Page 2

TABLE OF CONTENTS #1- Macro Demand Outlook A Review Of The Production Outlook & Updates On 787 787. .....3 #2- Airline Travel Data Series IATA Travel Growth, Global Demand Highlights Highlights.. ..4 Individual Domestic & Global Airline Reports Reports ...5 Cross-Atlantic Atlantic & Cross Pacific Travel Trends........6 Trends Latin American & Regional Aircraft Trends.......7 Trends Cargo Traffic Momentum.. ....8 .. #3- Interesting News Releases & Articles That Caught Our Attention..8 A Review Of The Global Airline Equity Trading & Estimate Changes..9 Jet Fuel & Commodity Prices.....10 #4- CRC Research Recaps Quarterly Titanium Survey Highlights Highlights....11 .11 Quarterly Nickel-Based Alloy Update12 te12 End-Market Demand Breakdown For Metals Metals ..13 Aerospace Fastener Survey .. .... ..14 Key Industry Drivers Recap Aircraft Production Outlook Titanium Trends (Upstream) Nickel-Based Alloy Trends (Upstream)

Airline Travel Data (Jet Capacity Driver)

Jet Fuel (Airline Margins)

Aero Fasteners (Downstream Demand)

Commodities (Raw Materials)

Equity Trading (Health Index)

The Cleveland Research Company Aerospace Materials Coverage Team Chris Olin, Sr. Research Analyst Kevin Money, Research Associate Curt Siegmeyer, Research Associate (216) 649 649-7212 (216) 649 649-7254 (216) 649 649-7208 colin@cleveland-research.com colin@cleveland kmoney@cleveland-research.com kmoney@cleveland ciegmeyer@cleveland-research.com ciegmeyer@cleveland

Aerospace Supply Channel Update Report

September 12, 2013 Page 3

AIRCRAFT DELIVERY OUTLOOK THROUGH THE CYCLE We did not make any changes to our aerospace delivery forecasts, but the data points collected throughout our work suggest there could be upside to the production outlook between 2016 & 2017. Specifically, we are focused on the growing probability for Boeing (BA) to raise its 737 delivery targets in order to facilitate the strong demand for the MAX-designs. Our current cyclical demand outlook implies a very mild correction could occur over the next 3-4 years (in between 2015-2017) before another period of acceleration, which is consistent in the data presented by the Airline Monitor. A majority of the new aircraft demand is expected to come from the shift toward more fuel-efficient aircraft, assuming 3,000 jets are retired over the next four years (roughly 12% of the existing fleet of 23,000). The outlook is very bullish for the part makers, forgers, and specialty material producers. In addition to the increased volumes, most of the companies in our watch group should also benefit from greater content of premium materials and service (secular growth evident through 2018-2020). Our current 2013 delivery outlook is 1,390 jets, which represents +6.6% growth. We assume BA represents 46% of the total production this year @ 640 units (@ +8.8%), Airbus will represent 610 deliveries (@ +3.7%), and the regional market contributes the final 115 units (+1.8% growth). We are assuming a near-term production peak @ 1,630 units in 2015.

Commercial Aerospace Industry Analysis

Total Jet Deliveries (Through 2020) Includes Regional Builds
2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0

Source: CRC and Airline Monitor

Our current delivery outlook does not include any announced delivery ramp for the 787 (to 12 per month). However, we see a higher degree of likelihood that the management team increases its monthly production rate target during 1H14. This should represent the next major catalyst for the supply chain. Production is currently @ 7-8 per month, likely to hit 10 by year-end. The company has inferred that 12 per month is achievable. Our fastener contacts suggested the Japanese aero suppliers started increasing purchases in July/August, which could represent a strong positive leading indicator. Deliveries 787 (all models) A350 (all models)
Source: CRC and Airline Monitor

2012A 46 0

2013E 60 0

2014E 120 0

2015E 120 50

2016E 140 70

2017E 155 110

2018E 160 140

Aerospace Supply Channel Update Report

September 12, 2013 Page 4

COMMERCIAL AIRLINE INDUSTRY DATA -- TRAFFIC ANALYSIS & HIGHLIGHTS We monitor monthly IAIA airline traffic data for a read through to aerospace-related aftermarket demand (includes forged/machined parts and metals). Bottom-line, the airline industry traffic and capacity momentum has been more favorable over the past few months, showing relative strength since January. However, the overall global industry data points for July were somewhat disappointing versus the previous 2-3 months. Total revenue passenger mile (RPM) growth was reported @ +5.0%, which compares to the average May & June comp of +5.8% (the 1H13 average was +4.5%). The four most interesting data points within the July IAIA report include: o North American travel has been holding in a +2-3% range over the past three months. The July comp was reported @ +2.2% versus +2.9% in June. Domestic travel has been slightly weaker with comps reported @ +1.5% versus +2.4% the previous month. The strength is coming from overseas travel (now running @ +3.6%). o European growth was reported at +4.0%, which is down from the +5% run-rate over the previous two months. It is still holding above the total 2013 average of +3.1%. o The weakness has been most visible in Brazil. The trend has been negative for 5 of the past 7 months during 2013. Brazil is travel was down 0.6% in July. o Global load factors remain high. The average capacity is calculated at 82.4% which is down just slightly versus the 82.8% in June. Available seat mileage growth eclipsed passage traffic with new planes coming back into service.
Commercial Airline Market Analysis
Reported Passenger Traffic Growth (2006 To Present)
12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0%

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Oct-06

Oct-07

Oct-08

Oct-09

Oct-10

Oct-11

Oct-12

Oct-13

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

Available Seat Miles

Source: IATA

Revenue Passanger Kilometers

Monthly Growth Total Market RPK ASK Load RPK ASK Load RPK ASK Load RPK ASK Load RPK ASK Load RPK ASK Load RPK ASK Load

Jan-12 5.7% 4.2% 78.1% -5.7% -3.0% 64.7% 8.2% 7.6% 77.1% 5.9% 2.9% 74.9% 9.3% 10.5% 78.5% 15.1% 10.9% 78.6% 0.2% -1.2% 77.9%

Feb-12 8.6% 7.4% 75.3% 22.8% 19.2% 64.9% 6.8% 7.6% 76.0% 7.6% 4.8% 73.9% 15.5% 15.4% 74.4% 23.1% 16.1% 77.1% 5.2% 4.4% 76.7%

Mar-12 7.6% 4.4% 78.3% 12.5% 9.4% 66.1% 8.5% 5.9% 66.1% 8.3% 3.6% 77.6% 6.8% 8.0% 73.5% 21.6% 13.2% 78.8% 2.4% -0.2% 83.0%

Apr-12 6.1% 3.8% 79.3% 6.2% 7.3% 66.6% 8.7% 5.7% 77.9% 5.6% 3.1% 79.9% 6.7% 5.2% 76.1% 16.1% 13.1% 78.3% 1.3% -0.8% 82.7%

May-12 4.5% 4.0% 77.6% 9.5% 11.3% 63.5% 5.3% 5.2% 75.4% 4.1% 2.8% 77.8% 8.0% 6.8% 72.9% 16.1% 12.4% 74.0% 0.5% 0.5% 83.4%

Jun-12 6.2% 4.5% 81.0% 9.0% 8.6% 65.7% 6.3% 4.9% 78.4% 7.0% 4.6% 81.6% 14.0% 10.6% 75.6% 18.3% 13.6% 78.8% 1.1% -0.1% 86.5%

Jul-12 3.4% 3.6% 83.1% 3.9% 4.2% 73.3% 3.4% 4.4% 79.8% 4.4% 3.7% 84.8% 9.4% 7.4% 81.1% 11.3% 12.3% 81.1% -0.9% -0.6% 86.7%

Aug-12 5.1% 4.1% 82.1% 3.2% 5.3% 68.5% 4.8% 4.7% 79.5% 5.0% 4.0% 83.9% 10.0% 5.8% 76.7% 16.2% 13.0% 78.3% 1.8% 0.7% 86.8%

Sep-12 4.1% 3.1% 80.0% 5.0% 2.8% 71.9% 4.1% 3.7% 77.5% 4.8% 3.0% 82.7% 8.5% 4.5% 76.8% 12.4% 10.6% 78.5% -0.1% 0.1% 81.9%

Oct-12 2.8% 2.3% 78.8% 3.3% 2.4% 68.4% 2.9% 3.4% 76.7% 2.3% 1.5% 80.0% 8.7% 6.0% 75.3% 11.6% 10.9% 75.3% -0.3% -1.5% 83.3%

Nov-12 4.6% 3.2% 77.3% 5.5% 4.2% 65.9% 6.0% 4.4% 76.6% 2.9% 0.0% 77.2% 11.3% 6.1% 76.1% 9.8% 10.3% 73.5% 1.6% 1.8% 81.4%

Dec-12 4.2% 2.7% 77.9% 6.3% 3.7% 69.0% 6.3% 4.6% 76.6% 1.6% -0.2% 77.4% 7.7% 4.4% 76.2% 12.6% 11.8% 77.3% 1.0% 0.2% 81.5%

Jan-13 2.7% 2.2% 77.1% 9.7% 5.8% 68.0% -0.1% 1.3% 76.4% 1.5% -0.1% 76.2% 6.3% 4.8% 79.3% 13.2% 13.1% 78.7% 2.6% 1.2% 79.0%

Feb-13 3.7% 1.0% 77.3% 6.5% 3.1% 66.3% 7.8% 4.7% 78.0% 0.7% -2.0% 75.9% 3.2% 1.8% 75.4% 9.8% 9.0% 77.8% -0.3% -3.3% 79.1%

Mar-13 5.9% 3.5% 80.3% 8.0% 5.4% 68.9% 8.0% 5.2% 79.3% 3.6% 0.2% 80.3% 7.5% 5.4% 74.9% 14.6% 13.2% 79.7% 2.8% 1.3% 84.2%

Apr-13 3.2% 4.4% 78.1% 4.7% 3.3% 67.8% 2.4% 3.7% 76.9% 2.0% 2.9% 79.4% 4.6% 7.9% 76.0% 10.9% 12.9% 76.8% -0.5% 1.3% 79.5%

May-13 5.6% 5.2% 78.1% 9.4% 6.9% 67.5% 6.6% 7.1% 75.3% 5.3% 3.7% 78.4% 7.8% 5.3% 75.8% 10.5% 11.8% 73.9% 2.9% 2.3% 84.3%

Jun-13 6.0% 5.6% 81.7% 10.8% 6.2% 71.3% 8.3% 8.8% 78.6% 4.8% 3.1% 82.6% 7.4% 5.1% 78.1% 11.0% 12.4% 78.7% 2.9% 2.6% 87.0%

Oct-14
Jul-13 5.0% 5.5% 82.4% 7.2% 4.9% 74.1% 7.7% 8.7% 78.5% 4.0% 3.7% 84.9% 5.9% 6.4% 81.4% 6.9% 9.7% 78.5% 2.2% 2.5% 86.8%

Jul-06

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jul-13

Jul-14

Aug-13

Sep-13

Oct-13

Nov-13

Dec-13

Africa

Asia/Pacific

Europe

Latin America

Middle East

North America

Source: IATA

Aerospace Supply Channel Update Report

September 12, 2013 Page 5

Our analysis of the Big-7 airlines in North America is showing further deterioration in passenger traffic over the previous 30 days. We calculate the average growth rate for the month of August to be +2.4% which compares to +3.3% growth in July. The data series continues to support a more favorable outlook for Alaska Airlines (ALK) and U.S. Airways (LCC) which are showing +8.1% and +5.6% growth, respectively.
Commecial Aerospace Market Analysis
20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0%

Monthly Reported RPM Growth (Domestic Airliner Rates) -- 2011 to Present

Revenue Passanger Miles % Growth

9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 Southwest 13.2%13.0% 9.8% 8.7% 9.9% 7.5% 5.9% 3.9% 6.4% 3.5% 2.5% -0.3% -2.7% 3.8% -0.9% -2.2% -2.6% -0.1% 0.0% 0.1% -2.1% -2.4% -1.5% -0.2% -1.7% -2.3% 4.0% 1.5% 4.2% 2.3% -1.5% -2.7% Delta United US Air Alaska Jet Blue Average 2.3% 1.4% 0.5% 2.6% 2.2% -1.5% 0.1% -0.3% -0.9% -3.8% -1.9% -2.3% -1.5% 2.5% 2.0% 1.2% -0.6% 0.4% -2.8% 0.2% -1.1% 0.3% 1.2% 0.5% 0.0% -2.2% 0.1% -0.7% 1.4% 0.7% 1.7% 2.7% 0.9% -3.4% -2.2% 1.1% -0.3% -0.9% -0.1% -0.9% -1.7% -5.1% -3.6% -0.7% -3.2% 3.4% 1.0% 0.9% 0.3% 0.1% -3.3% -0.1% -2.1% -0.3% -2.3% -4.0% 0.9% -3.4% -1.2% -3.8% -0.8% -0.6% -0.6% 0.0% 3.9% 4.1% 3.9% 4.3% 7.4% 2.5% 5.1% 1.2% -0.9% -1.5% 3.4% 3.6% 3.7% 7.8% 4.5% 2.1% -0.9% 1.7% 0.4% 5.7% 1.9% 3.1% 4.4% 1.8% 5.0% 2.4% 5.2% 4.4% 5.7% 7.0% 6.3% 5.6% 15.8%19.0% 19.3%18.1%11.7% 7.9% 6.8% 7.6% 10.4% 6.0% 7.8% 6.2% 17.5%21.5%15.7% 17.1% 11.2%10.6% 8.8% 8.1% 5.1% 8.5% 9.4% 8.4% 11.5% 6.0% 9.4% 8.5% 6.8% 8.1% 9.2% 8.1% 5.1% 9.0% 7.1% 6.1% 10.6% 7.2% 11.1% 5.8% 7.6% 7.6% 10.9%14.3% 13.3%17.4%12.5% 14.5% 7.4% 9.7% 7.1% 13.1% 6.1% 1.0% 5.7% 6.1% 11.2% 2.6% 8.6% 4.7% 9.4% 7.8% 7.3% 5.8% 6.2% 5.2% 5.6% 5.8% 3.1% 4.0% 2.1% 3.2% 0.7% 2.5% 2.4% 3.7% 8.7% 5.0% 4.5% 2.3% 2.9% 1.0% 3.8% 0.1% 0.6% 2.2% 2.1% 4.3% 0.2% 3.6% 1.9% 3.5% 3.7% 3.3% 2.4%

American -0.7% 0.0% -1.7% -1.8% -0.9% -0.9% -0.7% -2.6% 1.7% -1.8% -1.7% -3.9% -1.1% 4.4% -0.1% -2.2% 1.0% -2.2% -2.9% -0.7% -7.1% -6.0% -1.2% 2.4% 3.0% -1.3% -1.3% -1.4% -2.1% 0.5% 0.3% 0.8%
Source: Compay Reports

The global airlines we track are showing much stronger traffic results since 1Q. We calculate the average growth for the month of August @ +7.5%, which compares favorably to the +5.1% growth in July (this excludes China Southern which has been the strongest airliner). The main driver behind the favorable traffic momentum has been supported by renewed activity in Northern Europe & The United Kingdom. British Airways parent IAG, is seeing the most pronounced sequential movement.
Commecial Aerospace Market Analysis
Monthly Reported RPM Growth (GlobalAirliner Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0%

Revenue Passanger Miles % Growth

8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 China Southern 16.7% 4.5% 4.2% 10.2%13.1% 8.6% 10.7% 6.0% 7.9% 9.0% 18.0%11.6%17.2%11.2%11.0%10.1% 7.3% 9.9% 10.3%12.3%12.5% 7.8% 8.5% 11.5% -1.1% 18.0%15.1% 7.1% 10.9%12.4% 8.5% IAG Lufthansa Air France Qantas Average 4.5% 1.4% 8.8% 24.9%14.1% 9.2% 3.5% 2.2% 4.3% 1.9% 2.1% 12.2% 1.2% 1.6% 6.2% 4.0% 6.6% 8.9% 5.1% 9.1% 5.1% 3.2% 3.6% 0.2% 0.7% -0.3% 0.1% -0.8% 7.4% 8.2% 6.6% 10.6% 9.1% 13.1% 0.3% 24.4% 6.9% 4.9% 8.1% 5.7% 4.6% 2.8% 3.4% 6.8% 1.3% 2.5% 4.0% 0.5% -2.8% 1.2% -2.1% -0.2% -2.4% -2.8% -3.9% -5.0% -1.1% 0.7% 4.6% -25.5 5.2% 5.4% 3.6% 7.0% 4.8% 4.9% 1.0% 23.1% 4.9% 2.9% 6.9% 7.6% 9.3% 5.7% 2.5% 7.5% 3.6% 6.2% 6.8% 2.8% -0.1% 4.2% 1.2% 0.6% 0.9% -2.0% 2.8% 0.0% 4.8% -0.1% 2.3% 2.3% 4.7% 2.5% 1.8% 4.9% 8.5% 5.1% 3.3% 10.0% 8.6% 4.8% 5.0% 4.0% -1.1% 5.3% 8.5% 9.4% 8.7% 0.8% -1.7% 1.0% 0.4% 0.1% 6.0% 1.3% -2.4% -4.9% -2.0% -0.2% -1.0% 8.7% 5.8% 3.5% 18.5% 9.5% 6.4% 6.8% 5.3% 6.0% 3.7% 6.3% 9.5% 6.4% 6.2% 7.3% 3.6% 1.8% 6.0% 3.1% 4.4% 3.2% 2.5% 2.5% 1.7% 0.2% 2.7% 4.0% -3.4% 5.5% 7.2% 5.1% 7.5%

Source: Compay Reports

Aerospace Supply Channel Update Report

September 12, 2013 Page 6

The Big-7 airlines are seeing much better cross-Atlantic traffic with the average growth rate now calculated @ +3.0%, which compares to an average comparison of +0-1% during the previous two months. The momentum has improved considerably versus the 2011 & 2012 environment (down 2-3%), which could represent the next catalysts for newer jet entering service or re-starts.
Commercial Aerospace Market Analysis
Monthly Reported Cross-Atlantic RPM Growth (Domestic Airline Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0%

Revenue Passenger Miles % Growth

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0%

Delta United US Air Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 8.8% 6.1% 4.0% 19.6% 0.8% -1.1% -1.1% -2.4% -7.6% -10.3 -11.0 -7.3% -4.2% 3.0% -0.4% -6.1% -4.4% -5.5% -6.7% -5.1% -0.3% -3.0% -3.1% -4.3% -6.4% -8.8% -5.7% -3.2% 2.0% 4.8% 5.1% 6.0% -4.7% -9.2% -1.3% 18.3% 1.4% -2.0% -2.4% -2.0% -2.1% -7.9% -4.1% -1.1% -1.9% 0.8% 1.4% -6.0% -1.7% -1.4% -5.8% -2.4% -5.3% -9.6% -7.2% -4.6% -4.7% -9.2% -6.8% -4.1% -1.3% 1.0% 2.5% 7.2% 21.9% 24.3%13.5%21.3% 9.3% 2.3% 6.3% 4.0% 3.1% 5.4% 5.6% -0.3% -0.3% 3.6% 6.4% 0.3% -5.5% 4.5% -0.1% 2.8% -0.2% -3.5% -8.3% -6.4% -1.2% -1.5% -2.2% -2.0% 8.4% 5.5% 6.6% 6.9% 1.5% 1.5% -1.0% 19.5% 3.8% 0.8% 2.0% 1.8% 0.5% -0.9% -1.0% 2.1% 1.0% 5.1% 3.0% -2.8% -6.6% -2.0% -3.1% -0.2% -1.7% -7.5% -7.7% -5.2% -4.9% -8.2% 0.3% -3.9% 1.7% 0.7% 0.7% 3.0%

American -5.7% -4.6% -8.1% 19.1% 2.3% 1.5% 2.1% 2.5% 0.5% -0.6% -2.8% 4.8% 3.2% 8.0% 2.0% -2.7% -9.6% -5.5% -3.3% -0.6% -0.7% -8.5% -7.8% -4.9% -6.8% -11.0 5.0% -4.8% -0.1% -1.8% -3.1% -1.1%
Source: Company Reports

The cross-Pacific travel growth continues to suggest that travel to-and-from-Asia has stabilized. Overall growth appears to be running in the +3-4% range for 3 straight months, which compares to an average 1H13 growth rate of +1.8%. A majority of the improvement has been coming from strong market share gains for American Airlines. These cross-Pacific reads are consistent with the Europe-toAsia traffic updates released by Air France (+7.6% versus +4.6% in July), IAG (+8.9% versus +6.4%), and Lufthansa (+5.3% versus +3.8%).
Commercial Aerospace Market Analysis
Monthly Reported Cross-Pacific RPM Growth (Domestic Airline Rates) -- 2011 to Present
24.0% 23.0% 22.0% 21.0% 20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0%

Revenue Passenger Miles % Growth

13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0%

Delta United Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.6% 13.6% 0.6% -3.0% 5.5% 3.9% 9.5% 14.8% 0.8% -6.0% -7.0% -3.6% -2.5% 2.1% 12.6%16.3%12.2% 7.3% -2.0% 0.7% 5.3% 7.5% 11.5% 6.5% 0.9% 6.0% 3.8% 5.1% 0.5% -2.7% -1.4% -1.0% 4.8% 2.5% -6.6% -8.4% -1.6% -2.0% -1.1% -2.0% -3.6% -1.9% 1.8% -4.3% -5.6% 3.5% 7.9% 13.0% 6.2% 3.4% 0.0% 3.8% 5.2% 2.0% -0.4% -0.6% 4.8% 2.5% 2.6% -3.2% -1.0% 1.2% 0.3% -2.7% 12.2% 10.0% 2.6% -0.8% 6.9% 5.6% 10.4% 12.1% 1.0% -1.8% -3.4% 0.3% 3.1% 7.2% 11.3%16.0%10.5% 6.6% -2.1% 0.2% 5.9% 6.1% 9.5% 4.7% 1.2% 3.3% 1.8% -0.9% 2.1% 3.6% 3.8% 3.9%

American 12.3% 13.9%13.9% 8.9% 16.8% 14.8% 22.7% 23.5% 5.7% 2.4% -4.9% 8.7% 17.2% 15.8% 13.4%18.9%13.0% 9.1% -4.4% -3.9% 7.2% 8.8% 17.3% 8.3% -2.1% 1.5% -0.9% -4.7% 6.7% 12.2% 12.5% 15.4%
Source: Company Reports

Aerospace Supply Channel Update Report

September 12, 2013 Page 7

The Latin-American airline travel numbers reported by the Big-7 shows continued strength -- with the average growth rate holding in the +8-9% rate for the last three months. August came in @ +9.4%, which is the highest calculated RPM comp reached over the past 3 years. Delta is showing the market leadership in southbound travel, with American Airlines running a close second.
Commecial Aerospace Market Analysis
Monthly Reported Latin American RPM Growth (Domestic Airline Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0%

Revenue Passanger Miles % Growth

6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0%

Delta United US Air Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.5% 12.1% 15.7% 15.2% 2.1% -1.3% 0.1% 7.3% 1.2% -2.7% -0.6% -2.1% -4.7% -0.7% -4.1% -2.2% 4.6% 4.8% 3.7% 5.7% 3.2% -1.3% 0.6% -2.2% 0.5% -3.5% -0.8% -3.1% -5.9% -4.9% -4.6% -1.6% 2.8% -2.9% 3.0% 11.3% 5.5% 2.7% 6.2% 2.7% 8.5% 1.2% 1.4% 4.5% -0.6% 8.3% 6.5% 1.5% 2.9% 8.1% 0.0% 5.6% 2.2% -0.7% 4.0% 0.3% 2.8% -2.9% 6.1% -1.4% 3.4% 3.4% 0.9% -0.2% 0.7% -8.9% -11.5 -0.7% -1.1% -5.2% -0.6% -7.7% -7.9% -1.3% 3.4% -3.2% -7.1% 2.0% 4.7% 3.1% 3.4% 8.3% 1.4% 9.0% 3.8% -3.5% 2.8% 4.9% 5.8% 5.4% 8.5% -2.4% 2.3% 12.2% 10.9% 9.5% 2.0% -3.3% -1.0% 3.8% 3.2% 0.5% 1.8% -3.0% 4.3% 1.6% 2.6% 2.5% -1.7% 5.0% 4.5% 1.2% 3.3% 6.3% 0.4% 6.3% 6.7% 2.9% 8.1% 5.6% 5.4% 3.4% 7.1% 0.7% 6.4% 8.0% 8.3% 9.4%

American 11.9% 10.2% 12.1% 5.3% 4.2% 5.2% 3.4% -2.3% 3.0% -0.2% -0.1% 1.8% 3.2% 7.3% 1.9% 1.1% 2.5% 2.7% 1.2% 3.4% 6.1% 4.2% 9.7% 4.8% 4.2% 3.5% 5.5% 4.0% 9.3% 10.3% 10.8% 11.3%
Source: Compay Reports

The small-aircraft regional traffic has been a headwind for the domestic airlines. The average growth rate has been negative for 6 out of the last 7 months, including down 2.3% in August (versus down 2.9% in July). U.S. Air seems to be losing market share. Ultimately, we believe this data series reads fairly cautious for the smaller aircraft market.
Commercial Aerospace Market Analysis
Monthly Reported Regional RPM Growth (Domestic Airliner Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0%

Revenue Passenger Miles % Growth

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0% -14.0% -15.0%

Delta United US Air Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 -4.6% -6.4% -2.4% -3.9% 1.3% -1.9% -2.0% -2.0% 2.3% 0.7% 0.6% -3.4% -2.1% 5.7% 1.1% 1.4% -3.7% -3.3% -7.7% -4.7% -12.1 -7.5% -9.0% -7.9% -7.1% -13.3 -10.4 -8.7% -6.0% -7.3% -6.9% -3.2% 2.8% -1.3% -1.2% -3.1% 0.9% -0.1% -1.0% -0.1% 0.2% -2.1% -0.6% 3.8% 1.3% 9.8% 1.3% 1.0% -2.3% 1.8% 0.0% 0.0% -1.2% 24.9% 1.4% -3.6% 2.8% -1.3% 2.4% 1.4% 4.1% -1.3% 0.3% 1.9% 14.3% 16.3% 13.5% 7.9% 13.1% 2.4% 1.2% -2.2% -3.8% -5.1% -2.3% -2.0% 0.6% 4.7% -3.1% 2.4% 0.3% 2.6% 8.6% 16.8% 5.6% 6.7% 14.2% 15.4% 11.7% 7.0% 9.3% 5.4% -0.4% -1.8% -7.5% -10.5 3.1% 2.2% 2.5% 0.2% 3.8% 0.1% -0.5% -1.1% -0.3% -1.6% -0.6% -0.4% 0.0% 5.1% -0.2% 1.2% -0.7% 1.0% 0.1% 3.9% -2.3% 5.5% 1.4% 0.9% 2.3% -2.2% 0.9% -0.8% -0.2% -2.5% -2.9% -2.3%

American 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.0% 2.9% -0.6% 3.6% -1.4% -2.0% -1.1% -0.4% 1.7% -1.1% 2.2% -1.4% 1.5% 0.2% 2.6% 2.6%
Source: Company Reports

Aerospace Supply Channel Update Report

September 12, 2013 Page 8

CARGO MARKET UPDATE The reported cargo market for the domestic airlines continues to show negative comps, now @ 12 consecutive months (and 26 of the last 28 months). The August volumes were reported down 4.2% versus down 5.6% in July. The trend-line appears to be turning slightly more favorable as the comparisons are getting easier. Absent a greater pull from the cargo markets, it is unlikely the widebody market (A380 & 777) will see much more order growth over the next 1-2 years.
Commercial Aerospace Market Analysis
Monthly Reported Cargo Tonnage Growth (Domestic Airline Rates) -- 2011 to Present
17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0%

Revenue Passenger Miles % Growth

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% -8.0% -9.0% -10.0% -11.0% -12.0% -13.0% -14.0% -15.0%

Delta United Average

Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- JunAug- Sep- Oct- Nov- DecJul-11 Jul-12 Jul-13 11 11 11 11 11 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13 13 13 13 13 13 19.5% 12.1% 15.7%15.2% 2.1% -1.3% 0.1% 7.3% 1.2% -2.7% -0.6% -2.1% -4.7% -0.7% -4.1% -2.2% 4.6% 4.8% 3.7% 5.7% 3.2% -1.3% 0.6% -2.2% 0.5% -3.5% -0.8% -3.1% -5.9% -4.9% -4.6% -1.6% -11.8 -15.7 -8.7% -5.8% -18.4 -16.9 -14.1 -16.9 -15.7 -14.9 -14.3 -8.5% -11.9 -6.6% -5.7% -12.8 -7.4% -2.3% -6.2% -2.6% -0.3% -10.3 -5.3% -10.9 -11.8 -15.7 -13.2 -9.0% -8.3% -10.2 -18.0 -16.5 2.4% -2.1% 1.6% 3.9% -7.6% -8.7% -6.5% -6.3% -6.6% -9.9% -8.1% -5.3% -6.0% -2.0% -2.1% -5.3% -1.6% 1.2% -2.5% 1.1% -1.8% -6.4% -1.3% -3.1% -6.9% -9.8% -6.2% -5.1% -3.3% -2.4% -5.6% -4.2%

American -0.4% -2.7% -2.1% 2.2% -6.6% -7.8% -5.6% -9.2% -5.2% -12.0 -9.4% -5.2% -1.5% 1.4% 3.6% -1.0% -2.0% 1.1% -4.9% 0.3% -8.3% -7.6% 0.8% 3.7% -9.3% -10.2 -4.6% -3.2% 4.1% 8.0% 5.7% 5.7%
Source: Company Reports

SOME NEWS ITEMS THAT CAUGHT OUR INTEREST OVER THE PAST 30-60 DAYS
Could Be Impactful For Future Forging Or Metals Demand -- Modeling Assumptions= ***** This Is Now On Our Radar = *** A Developing Situation = ** Something That We Consider Interesting Information = *

*****The Justice Department has filed suit to block the merger between US Airways & American Airlines. It has alleged violations of the federal anti-trust laws, which is interesting considering the recent mergers between Delta/Northwest (2008), United/Continental (2010), and Southwest/AirTran (2011). This newest proposed combination would create the worlds largest airline controlling roughly 15% of total fleet capacity (10% for American and 5% for US Airways). The last attempt to block an airline merger came in 2000 with US Airways & United. It took about 13 months to determine that final outcome this trial will start on November 25. The domestic fare inflation (on 1,000 routes) and possibly the Latin American route concentration could be the sticking points. Conversely, the airline management teams have argued that the merger could generate at least $500 million in annual cost savings. From a market impact, many of our specialty mill and forging contacts had previously suggested the recent material inventory drawdown throughout the jet engine channel has been partially attributed to American and US Airways already acting in concert. *United Airlines recalled 600 pilots back to work. All pilots have now returned from furlough for United or United Express. The company estimates there to be approximately 12,000 active pilots currently working in the country. This implies the recent labor move represents a rough 5% increase to the active workforce. We believe this announcement improves the likelihood of airline operators being more aggressive in driving future seating capacity and new route introductions. We estimate United Airlines to represent about 10-11% of the commercial airline fleet (about 725 aircraft). **Indigo Partners is said to be in talks to acquire Frontier Airlines from parent-Republic Airways. Speculation is running throughout various trade journals & the WSJ that a Bill Franke-lead investment firm has targeted Frontier Airlines for a new growth opportunity. This could result in Frontier becoming introduced as the third major ultra-low cost airliner in the U.S. (behind Spirit

Aerospace Supply Channel Update Report

September 12, 2013 Page 9

Airlines & Allegiant Travel). We are watching this event as it could push more LT jet orders from Frontier. Franke is the former CEO of America West Airlines and recently sold his positions in Spirit Airlines. *Boeing says China could drive demand for 5,580 jets over the next 20 years. Some pretty bullish figures coming out of the important OEM in early September. The company expects Chinese air traffic to grow by 7% (annually) driven by tourism and intraAsia travel. The 5,000+ delivery target for the region would represent about 16% of the LT global fleet growth. Within the presented data, BA is more bullish on the upside potential for the single-aisle or narrow body market, including incremental demand for the 737 and 737-MAX (which will be a titanium and nickel-based alloy intensive jet). They are projecting 3,900 deliveries versus 1,200 wide bodies over the same time period (supported by 7.2% international traffic growth). *Delta made a fairly sizeable order with Airbus for the first time in 20 years. The airline operator ordered 10 A330-300 wide body jets (to be used on international flights) and 30 A321 models (domestic travel). Consensus thinking has Airbus using price to go after the BA market share. Airbus share gain is something to consider going forward. *Embraer sees strong demand for the executive jet market in China. The company recently announced a LT demand outlook of 805 executive jets to be delivered into the Chinese market (between 2014 & 2023). The large-cabin business jet class is expected to represents about 51% of the demand. The two main drivers to this forecast are current demand growth (+27%) and upside in the number of the wealthiest population (+26%). Equity Trades & EPS Movement We are seeing mixed signals from the global airliner peer group. In general, current and out-year (2014) earnings forecasts have been cut by 11% and 10%, respectively. However, there has been positive trading activity over the past 30 days, with the peer group outperforming the S&P 500. We attribute the revised numbers to the rising jet fuel cost environment and travel weakness into the Asia-Pacific markets. Here are some things that stand out: o The global shares are up 1% over the past month and +56% over the past three months. The domestic operators have increased by 66% over the past three months lead by DAL. o The 2013 earnings outlook for the companies levered to Asia-Pac have fallen by 30%. o Delta Airlines shares have increased by 10% over the past 30-days and +144% over the past three months.
Commercial Airlines Peer Group - Recent Stock Movement
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Company Qantas Airways Air China Delta Airlines China Southern Jet Blue Air France Alaska Airlines Southwest Airlines Allegiant Singapore Airlines Japan Airlines S&P 500 Easy Jet United Airlines Spirit Airlines Republic Airlines U.S. Airways Lufthansa Ryan Air Ticker QAN-AU 753-HK DAL 1055-HKG JBLU AF-PAR ALK LUV ALGT C6L-SES 9201-TKS SP50 EZJ-GB UAL SAVE RJET LCC LHA-ETR RY4B-DUB Price Mkt Cap ($000) 30 Day Chg. 3 Month Chg. Earnings Changes Description Australia-Based Airliner Chinese-Based Airliner U.S. Airline Operator Chinese-Based Airliner Discount Airline Operator French-Based Airliner U.S. Airline Operator U.S. Airline Operator Discount Airline Operator Thailand-Based Airliner Japan-Based Airliner Index U.K.- Based Airliner U.S. Airline Operator U.S. Airline Operator Discount Airline Operator U.S. Airline Operator German-Based Airliner U.K.- Based Airliner Current -70% -22% 6% -37% -14% nm -11% -10% -9% -22% 0% 10% -16% 2% 3% 12% -12% -4% -11% -5% Out Year -48% -24% -1% -31% -13% -34% 0% -8% -4% -12% 1% 12% -9% 2% 0% 5% -18% -1% -10% -7%

$1.41 $5.78 $22.42 $3.07 $6.48 $6.76 $60.77 $13.85 $98.28 $10.03 $5,570 $1,689 $13.25 $32.66 $32.96 $12.06 $17.72 $13.97 $6.18

3,150 75,630 19,235 30,141 1,829 2,031 4,246 9,781 1,855 11,777 n/a 5,247 11,624 2,394 595 3,403 6,423 8,802
11,657 6,452

19% 13% 9% 7% 3% 2% 1% 1% 0% 0% 0% 0% -2% -3% -4% -4% -5% -6% -14%

1% 0%

0% 26% 142% -8% 30% 53% 76% 55% 51% -7% n/a 18% 135% 65% 68% 151% 52% 36% 59%
56% 66%

Average For All Global Airlines Average Domestic Airlines

Aerospace Supply Channel Update Report

September 12, 2013 Page 10 Jet fuel will likely be a headwind for airline profits: The average price for jet fuel (we watch Gulf Coast Kerosene-Type) has rebounded from the April/May lows. The current price quotes in holding around $3.08 per gallon, which is up 13% over the past 4 months and up 6.6% versus August). Fuel represents roughly 70% of the actual flying costs with flight crew costs 25%. Fuel also represents 50% of the total operating cost (including maintenance and depreciation).
Jet Fuel Price Trend
$4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 $2.25 $2.00 $1.75 $1.50 $1.25 $1.00 $0.75 $0.50 $0.25 $0.00 Aug-03
Source: EIA

Monthly Spot Quotes (Per Gallon)

Aug-04

Aug-05

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

There has been some early stabilization in the commodity markets. Nickel and aluminum have found a price floor during the month of August. These represent key cost inputs for the forging and component markets. o The current nickel price is holding @ $6.30 per pound, which is down slightly from the August average of $6.47, but up from the $5.90 bottom in mid-July. o Aluminum is trading at $0.81 per pound, which is down 1.2% to an average of $0.824 in August. Prices have also rebounded from the mid-April low of $0.79. o Molybdenum prices are trading near $9.84 per pound, which is up from the average August transaction of $9.41. The market bottomed in early August @ $9.34.
Monthly Commodity Nickel Prices
$25.00 $24.00 $23.00 $22.00 $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 $15.00
3,500,000 4,000,000 4,500,000 5,000,000

Aluminum Prices (LME)

Monthly, 1990-Present
5,500,000

LME Monthly Average (2002 - Present)

$1.40

$1.20

$1.00

per pound

$13.00 $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

2,500,000

$0.60
2,000,000

1,500,000

$0.40

1,000,000

$0.20
500,000

0 Jan-90
Source: Metalprices.com

$0.00
Jan-92 Jan-94 Jan-96 Jan-98 Jan-00
Inventory

Jan-02
LME Price

Jan-04

Jan-06

Jan-08

Jan-10

Jan-12

Midwest Premium

Source: metalprices.com

per pound

$14.00

3,000,000

$0.80

MT

Aerospace Supply Channel Update Report

September 12, 2013 Page 11

TITANIUM MARKET UPDATE Our titanium industry contacts (buyers within distribution, forging and processing channels), reported downstream shipment levels (and order entry rates) to be running in-line with expectations (the number of contacts reporting a miss has fallen to 6% versus 30% in 2Q). The overall order entry rate was estimated @ +1-2%, which is steady with our 2Q results (1Q was @ +2-3%). We maintain a relatively positive outlook for aerospace demand over the next 6-9 months. Current aerospace demand was calculated @ +1-2%, which is driven by +2-3% growth in airframe and renewed strength in fastener feedstock.
CRC Titanium Quarterly - Demand Update
NT Order Growth Trends (%, y/y)
20.0% 19.0% 18.0% 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0%
Source: CRC Survey

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Titanium prices are still falling. We estimate the average price for 64 spot ingot @ $9.50 per pound, which compares to a $10.00 average in 2Q. The average transaction price is now down 11% versus last year and off by 24% since the last 2011 peak ($12.5012.60 per pound). Titanium scrap had brought the market down (off by 35% versus last year) but there has been some trading stability during the months of August and September @ $1.75 per pound.
Titanium 6'4 Ingot/Scrap Prices
Monthly Average Quotes $32.00 $30.00 $28.00 $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00

Source: metalprices.com

Titanium Ingot Prices

6'4 BW Scrap

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NICKEL-BASED ALLOYS MARKET Our 3Q nickel alloys update suggests the next earnings report(s) for Allegheny Technologies (ATI), Carpenter Technology (CRS), Haynes International (HAYN), and Precision Castparts (PCP) may start to reflect mill volume stability. These checks came out more positive in relation to titanium. We estimate the 3Q downstream order growth @ +1% versus a down 1% comp for 2Q. The relative strength has been generated by renewed growth in service centers, energy, and power generation demand rather than changes to the jet engine landscape.
CRC Nickel-Based Quarterly - Demand Update
NT Order Growth Trends (%, y/y)
14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 -1.0% -2.0% -3.0% -4.0%
Source: CRC Survey

There is no stability evident within the nickel-based alloy price environment. The average spot market price has now fallen steadily since 3Q11, with a current quote of $13-15 per pound versus $14-17 last quarter. A large component of the mill reductions have been the lower commodity nickel input costs (which drives the surcharge), with prices now holding in a $6-7 range per pound (versus $8-10 for most of 2011 and 2012).
CRC Quarterly Nickel-Based Alloy Price Update
Est. Quarterly Pricing Band
$23 $22 $21 $20 $19 $18 $17 $16 $15 $14 $13 $12 $11 $10 $9 $8 $7 $6 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

Source: CRC Research

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END-MARKET ANALYSIS We are using the results from our specialty materials research to provide an initial view into the core demand outlook for each of the main end-users of titanium and nickel-based alloys. This includes a breakdown of the main aerospace drivers. Over the next 2-3 months, we will be introducing new surveys/updates which should give us alternative views into underlying consumption at different points in the supply chain. We estimate the core upstream aerospace demand @ +2-3% (for the second straight quarter), which is down from the +4% growth we recorded in 1Q (most of the sequential weakness was evident in the nickel-alloy markets). Again, commercial airframe represents the main demand-pull for titanium aerospace. We have not seen any improvement in the order trend for jet engine (nickel-alloy intensive), or regional aircraft. The fastener feedstock data points are stronger, which was also confirmed by the downstream fastener distribution channel update we released (see next page). The end-markets that represent industry laggards in 3Q are: military & defense (now looking down 2-3%); nuclear (down 1-2%), power generation (down 0-1%), power generation (down 0-1%)), and now desalination (down 0-1%).

CRC Quarterly Specialty Materials Update

2013 End-Market Demand Breakdown (% Growth)
2Q 3Q

3.9%

2.5% 2.2% 1.8% 1.6%

2.4%

2.4% 1.9% 1.6% 1.3% 0.9% 1.1% 0.9% 0.5% 0.0% 0.0% 1.0%

-0.3% -0.6% -0.8%

-0.4% -0.4%

-0.6%

-1.6%

-1.8%

-2.4%
Source: CRC Survey

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AEROSPACE FASTENERS UPDATE We came away from our 3Q aerospace fasteners market update with a generally favorable view on underlying market fundamentals. The data points surrounding demand, full-year expectations, lead times, and inventory all suggest the industry will likely benefit from an accelerated period of demand in 2H13 and 2014, with increasing pricing power. In general, we believe the suppliers into the channel are better positioned due to the shortage of inventory and downstream desire to build. Over the near-term the distributors seem to be benefiting from slightly better growth rates relative to the manufacturers as the channel is going through a mild inventory adjustment. We have re-listed the seven most interesting take-aways from the August channel discussions (see our note from 8/19). 1. 3Q demand improved versus the strong 1H run-rate. We estimate the underlying growth rate for aerospace fasteners has improved to +8-10% versus the average 1H comp of +7-9%. The incremental volume contribution has been generated by OEM demand and the supplier preparation for future aircraft deliveries. The aftermarket and military/defense markets remain the laggards over the past 3-4 months, partially offset by demand pull from the BA pipeline. Fastener shipments have surpassed aircraft delivery growth, which is running @ +6-7% for 2013. This suggests the supply chain is staring to prepare for a strong 2014, with new jet deliveries expected to hit 1,500 units (+11-12% versus 2013). Our contacts are starting to see a small pull from the Boeing 787 supply chain. The current fastener shipment levels reflect a monthly shipment rate of 5-7, which has been somewhat disappointing for distributors. However, there has been a strong uptick in new orders from Japanese suppliers which is a positive leading indicator for future 787 production. 2. Expectations are moving higher for 2014 based on the confidence in aerospace build schedules. The 2014 outlook is bullish and expectations are moving higher. Current planning now incorporates +10-15% growth (moving toward the higher end of the range). The more positive producers, who are levered to commercial aerospace, have said out-year growth could hit up to +20-30% on favorable inventory contributions (distributors are not building at this point). Our contacts are starting to prepare for another 737 production increase. The supply chain is starting to prepare for another BA737 rate increase based on communications with the OEM and the tier-1 suppliers. Current speculation has the production rates moving up to 47 units per month (564 annualized). Interestingly, BA recently increased the monthly production rate to 42.5 by 2014 (up from 38 units) which is driving the peak 2016 delivery outlook of 510 (versus a 450 runrate this year). A 47 per month production run rate would be an all-time high for BA, but it remains to be seen if the channel can sustain this level of production. Regardless, our channel work suggests the suppliers are getting ready for a formal announcement. We do not believe the current discussion for 47 per month is reflected in the numbers. The military & defense markets are showing slight negative comps, but underlying demand is still running above expectations. The fastener channel is experiencing the negative demand effects from Sequestration. Total military & defense volume growth appears to be trending down in the low-single-digit range. However, this is slightly better versus plan with orders from Bell Helicopter (TXT) and Lockheed Martin (LMT) relatively stable. We estimate the defense market to represent approximately 15-20% of aero fastener industry demand. Lead times are extending; pricing power beginning to improve. We estimate the average lead time @ 25-30 weeks. This is up significantly since the beginning of the year. The producers with greater leverage to BA are quoting out 40 weeks. Distributors typically see improved pricing power as shortages increase, which also allows suppliers to increase price. The outlook for pricing is to show notable improvement through 2014. Boeing is trying to bring more fastener work in-house. One of the drivers behind BAs new Partnering For Success Program is bringing fastener production in-house. BA is currently working with New Breed Logistics to better maintain control of its internal fastener supply which includes the increased internal fabrication, better inventory management, and concerted effort to reduce the number of SKUs. At this point, we have not seen the BA strategy impact the distribution channel or supplier base. There are multiple contacts who do not believe BA is likely to be successful in controlling the fastener volume due to past failures at other companies who have attempted similar strategies like SPR. The titanium mix shift continues to move toward greater use of titanium and stainless components, CRS is wellpositioned. Our contacts are seeing greater use of premium fasteners made from specialty materials. These high-value rivets and fastener components are used in airframe structures made from composite materials as the materials have similar physical characteristic (the materials expand at similar stress levels) and compatible chemical properties (reduced risk of galvanic reactions). As the mix shift continues, titanium wire feedstock demand growth is expected to outpace fastener demand. Accordingly, we see good underlying demand drivers for the Dynamet operations. The CRS fasteners segment is running @ $150-160 million in sales, with upside to the $200 million range, supported by the new capacity in place.

3.

4.

5.

6.

7.

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APPENDIX Important Disclosures Companies Mentioned Carpenter Technology (CRS: $57.39 BUY) Allegheny Technologies (ATI: $29.21 BUY) RTI International (RTI: $32.19 Underperform) Boeing (BA: $109.23 Not Rated) Precision Castparts (PCP: $228.63 Not Rated) Spirit AeroSystems Holdings, Inc Class A (SPR: $23.97 Not Rated) Delta Air Line (DAL: $22.42 Not Rated) Alaska Air Group (ALK: $60.77 Not Rated) Southwest Airlines (LUV: $13.85 Not Rated) Republic Airways Holdings (RJET: $12.06 Not Rated) Allegiant Travel Company (ALGT: $98.28 Not Rated) US Airways Group (LCC: $17.72 Not Rated) Spirit Airlines (SAVE: $32.96 Not Rated) United Continental Holdings (UAL: $32.66 Not Rated) Embraer SA (ERJ: $35.68 Not Rated) Textron (TXT: $29.38 Not Rated) Haynes International (HAYN: $46.16 Not Rated) Lockheed Martin (LMT: $126.57 Not Rated)
Allegheny Technologies Inc.
70

BUY, 60 $80

BUY, $75

BUY, $65 BUY, $52 BUY, $57

50

40

30

Sep-10

Aug-11

Aug-12

Jan-11

Jun-12

Jan-13

Jul-10

Mar-11

May-11

Mar-13

May-13

Feb-12

Oct-11

Nov-10

Dec-11

Oct-12

Apr-12

FactSet Research Systems

Jul-13

Aerospace Supply Channel Update Report

September 12, 2013 Page 16

Carpenter Technology Corp.

60 BUY, $58

55

50

BUY, $56

45

BUY, $46

40

BUY. $64

35

30 Sep-10 Aug-11 Aug-12 Jan-11 Jun-12 Jan-13 Jul-10 Mar-11 May-11 Mar-13 May-13
May-13

Feb-12

Oct-11

Nov-10

Dec-11

Oct-12

Apr-12

FactSet Research Systems

40

RTI International Metals Inc.

35 BUY, $35 30 UNDERPERFORM, $15 25 NEUTRAL

20 Mar-11 Mar-13 Sep-10 Aug-11 Aug-12 Jan-11 Jun-12 Jan-13 Jul-10 May-11 Oct-11 Nov-10 Dec-11 Feb-12 Oct-12 Apr-12 Jul-13

FactSet Research Systems

Jul-13

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September 12, 2013 Page 17

Cleveland Research Company - Ratings Distribution

UNDERPERFORM 1%

BUY 36% NEUTRAL 63%

Disclosures Buy: The stocks return is expected to exceed the market due to superior fundamentals and positive catalysts. Underperform: The stocks total return is expected to underperform the market due to weak fundamentals and a lack of catalysts. Neutral: The stock is expected to be in line with the market due to full valuation and/or a lack of catalysts. Valuation and Risk: Price targets are established under various valuation methods including P/E, P/S, EV/EBITDA on financial estimates based on forward earnings. Price targets are not established for every stock. The price targets effectiveness may be affected by various outside factors. Risk assessments can be found in the most recent research on these stocks. Other Disclosures: We, Christopher D. Olin, Kevin L. Money, and Curt A. Siegmeyer, certify that the views expressed in the research report(s) accurately reflect our personal views about the subject security(s). Further we certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report(s). The analysts responsible for the preparation of this report have no ownership stake in this company. Cleveland Research Company provides no investment banking services of any type on this or any company. Proprietary research and Information contained herein which forms the basis for findings or opinions expressed by Cleveland Research Company may be used by Cleveland Research for other purposes in the course of compensated consulting and other services rendered to third parties. The information transmitted is intended only for the person or entity to which it is addressed. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender and delete the material from any computer. Member FINRA/SIPC