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Steel "rust" is reddish-brown and comes from steel reacting with oxygen; rust is weak compared to the original steel. Aluminum does not "rust" in the sense of turning reddish brown, but it does "rust" in the sense that it reacts with oxygen and gets weak.
Here is a Trek aluminum frame that collected water in the seat tube and rusted through:
Photo: yellowjersey.org
It is common for some water to enter the seat tube around the seatpost. It is also common to have a hole at the bottom of the seat tube which lets water drain in to the bottom bracket area, and from there it can often drain out.
This frame does not have a drain hole at the bottom of the seat tube; it collected water and rusted through.
It is likely the bicycle was ridden in winter when salt is used to help melt ice, and salty water got in the seat tube. Salt helps speed rust of both steel and aluminum.
There are many types (alloys) of aluminum. Some resist corrosion fairly well, but tend to be relatively weak. Other aluminums are fairly strong but can be a lot more likely to corrode. Not surprisingly, bicycle frames are typically made of stronger but more corrosion-prone aluminums. Several treatments are often used to protect aluminum from rust, such as anodizing (chemical reaction of the top layer of aluminum), donor coatings (which oxidize in preference to the aluminum), or painting (which forms a resistant barrier between the aluminum and the oxygen). In this case, protecting the tube would have required treating the inside of the tube.
Note the hole is well above the bottom of the tube; at the same time, stresses are typically highest at the bottom of the tube, so if everything were equally weak, the failure would have been at the very bottom of the tube. This shows the bottom of the tube was not the weakest part of the tube. Most likely the bottom of the tube was always filled with water and so exposed to less oxygen; and it was the area above that which was exposed to air and which thus rusted most quickly.
The model of the frame is not given. It is also possible the tube is butted and rusted through just above the butt. Stresses are less than at the bottom of the tube, but in a butted tube the thin section may carry higher stress per unit metal than in the thick section. Indeed, this is a typical goal of butting, because welding weakens the base metal, so the area near the weld needs to be thickened both to counter the higher stresses and because the tubing is weaker from welding. Again, it is not clear if the frame is butted, but if so that would likely influence the location of the failure.
It is possible welding also affected the aluminum near the weld to make it less prone to corrode, but this is less likely as the hole is well above the typical heat-affected zone.
See also FAIL-178.html