It has been less than a week since Alcoa (NYSE:AA) showcased its next-generation aluminium alloy at the Paris Air Show. And the aerospace industry seems to agree that these new alloys hold plenty of promise. Airbus decided to sign a multi-year contract worth $1 billion with the aluminium industry leader.  Alcoa will supply its new alloys for almost all Airbus commercial aircraft. The company competes with other international metals and mining giants like Rusal, Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Chalco (NYSE:ACH).
Our price estimate for Alcoa at $19.80 implies a premium of about 30% to the market price.
Alcoa’s new aluminium alloy promises to slash aircraft weights
Alcoa hit the right note at this year’s Paris Air Show by showcasing the revolutionary fuselage panel made by Spirit AeroSystems using the new alloy. With aircraft manufacturers always looking for ways to reduce the weight of their aircraft to improve fuel efficiency without sacrificing strength, it clearly caught the attend of Airbus. We spoke about this in our article, Alcoa Gains from Fuel Efficiency Focus at Paris Air Show.
Alcoa claims that an aircraft made with the new alloy would be about 10% lighter and would improve fuel efficiency by as much as 12%. The alloy also lends itself to manufacturing lighter and more efficient jet engines, which are faster to produce and require less maintenance.
And the first step towards higher sales has already been taken…
The contract with Airbus followed almost immediately after the demonstration as it was announced when the Paris Air Show was still going on. The airline industry giant explained that it would use this new alloy in almost all its commercial aircraft from its smaller, single-aisle planes to the double-decker A380.
And more importantly, the contract also opens the door for other aircraft manufacturers to explore the new alloy and enter into sales agreements with Alcoa.Notes: