Alcoa Announces Acquisition Of Aerospace Components Manufacturer As Aerospace Expansion Continues

December 17th, 2014 by Trefis Team
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Alcoa (NYSE:AA) has announced the signing of an agreement to acquire TITAL, a Germany-based producer of titanium and aluminum structural castings for aircraft engines and airframes. [1] This acquisition will establish titanium casting capabilities in Europe for Alcoa, while expanding its aluminum casting capacity. TITAL counts several major European engine and aircraft manufacturers such as Airbus, SNECMA, and Rolls-Royce amongst its customers. [1] Thus, the acquisition will enhance Alcoa’s customer base in the region.

TITAL’s revenues stood at $96 million in 2013, with titanium products accounting for more than half of this number. [1]  As per information released by Alcoa, TITAL’s revenues from titanium are expected to increase by 70% over the next five years. [1] Titanium is increasingly becoming a material of choice for engine structural components for next-generation jet engine manufacturers. Titanium is a lightweight alternative to steel and can withstand extreme heat and pressure. Titanium components can boost energy efficiency and improve engine performance. [1]

The announcement of this acquisition is the latest in Alcoa’s efforts to expand its aerospace businesses. The company is betting heavily on the aerospace segment to drive the sales of its value-added products, as it looks to transform its product portfolio away from its commodity businesses.

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Focus on the Aerospace Segment

Alcoa is extremely bullish on the aerospace segment. It is banking upon aerospace to drive sales of its value-added products. The company forecasts 8-9% growth for its aerospace end markets this year. [2] Alcoa projects a compounded annual growth rate of 7% through 2019 and a nine-year production order book at 2013 delivery rates for the commercial jet segment. [1] The strong order book is also reflected on the jet engines side with 23,600 engines on firm order. [3] For Alcoa, this represents sustained demand for its aerospace products for the medium term. Hence, it has significantly increased its exposure to the aerospace segment.

In 2014 alone, several major developments in the aerospace segment have taken place for Alcoa. The company recently opened a $90 million manufacturing facility for the production of advanced third-generation aluminum-lithium alloys for the aerospace industry in Lafayette, Indiana. [4] The company also announced the signing of a long-term contract worth $1 billion to supply aluminum sheet and plate products to Boeing. [5] In July, the company announced the signing of a a 10-year agreement worth $1.1 billion to supply jet engine components to jet engine manufacturer Pratt & Whitney, a division of United Technologies Corporation (UTC). [6] In June, the company announced the $2.85 billion acquisition of jet engine components maker Firth Rixson. [7] Prior to that, it had announced a $25 million expansion of the Alcoa Power and Propulsion facility in Hampton, Virginia. [8] The company had also announced the setting up of a $100 million facility in La Porte, Indiana, for the production of nickel-based superalloy jet engine parts. [9] Alcoa also signed a long-term agreement worth $290 million to supply aluminum sheet to Spirit AeroSystems over five years. Spirit is one of the largest designers and manufacturers of aerostructures for commercial, military, business, and regional jets in the world. [10]

Alcoa’s aerospace revenues of $4 billion in 2013 accounted for around 17% of its total revenues for the year. [11] With several recent developments in the aerospace segment, its share of the company’s revenues is set to grow at a rapid pace. Further, this fits in well with the strategic shift of the company’s product portfolio towards value-added products. The share of value-added products in the company’s overall sales stood at 52.1%, 54.4%, 55.7%, and 57.1% in 2011, 2012, 2013, and the first nine months of 2014, respectively. [6] These figures are indicative of the company’s ongoing strategic shift towards value-added products.

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Notes:
  1. Alcoa to Acquire TITAL to Expand Global Growth Platform for Titanium Aerospace Components, Alcoa News Release [↩] [↩] [↩] [↩] [↩] [↩]
  2. Alcoa’s Q3 2014 Earnings Presentation, Alcoa Website [↩]
  3. ref:1 [↩]
  4. Alcoa Opens World’s Largest Aluminum-Lithium Aerospace Plant in Indiana, Alcoa News Release [↩]
  5. Alcoa Signs Multiyear Supply Contract with Boeing Valued at More Than $1 Billion, Alcoa News Release [↩]
  6. Alcoa Announces Jet Engine First in $1.1 Billion Supply Agreement with Pratt & Whitney, Alcoa News Release [↩] [↩]
  7. Alcoa’s Transformation Accelerates, Will Acquire Firth Rixson To Grow Global Aerospace Portfolio, Alcoa News Release [↩]
  8. Alcoa Boosting Aerospace Capabilities in Virginia to Meet Demand for Next-Gen Aircraft Engine Parts, Alcoa News Release [↩]
  9. Alcoa Expands in Indiana to Capture Growing Aerospace Demand for Advanced Jet Engine Parts, Alcoa News Release [↩]
  10. Alcoa Signs Long-Term Supply Agreement With Spirit AeroSystems For Aluminum Sheet, Alcoa News Release [↩]
  11. Alcoa’s 2013 10-K, SEC [↩]