A deal was announced on Thursday that will see Alcoa Inc (NYSE:AA) garner $290 million in sales from Spirit AeroSystems Holdings, Inc. (NYSE:SPR). The agreement, which involves the supply of sheet aluminium over five years, helped an increase in the value of Alcoa shares on Thursday. The deal comes just two weeks after the aluminium supplier said that 2014 aerospace growth is likely ahead of previous expectations.
Alcoa Inc (NYSE:AA) is no longer as well followed as it once was. The company was removed from the Dow Jones Industrial Average last year, and its performance has left a lot to be desired over the last decade. The company never actually recovered from the 2008 financial crisis in terms of market value and in 2013 it looked like that might never happen. 2014 has brought something of a renaissance to the company’s fortunes however.
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Alcoa Inc secures aerospace deal
The collapse of demand for products supplied by Alcoa Inc (NYSE:AA) in the immediate wake of the financial crisis and the advent of cheaper alternatives out of China have harmed the company’s shareholders massively. The firm is trying to spur demand by concentrating on markets that require high quality aluminium. For Alcoa the aerospace industry is one of the top priorities and, as today’s deal shows, the company is chasing after it.
The company said “This new multi-year contract with Spirit deepens our collaborative relationships and enables us to continue to grow in this important market. We are well-established in the aerospace industry and offer the best value and performance to our customers,” in its press release concerning the deal with Spirit AeroSystems Holdings, Inc. (NYSE:SPR).
According to the company it will supply Spirit AeroSystems Holdings, Inc. (NYSE:SPR) with aluminium sheet from its plant in Davenport Iowa. AeroSystems will use the material for its fuselage construction business. That firm is one of the largest designers and manufacturers of parts for military, private and commercial aircraft in the world.
According to Alcoa Inc (NYSE:AA) projections, its Aerospace business is set to grow by 9% in 2014 on the back of strong demand for “large commercial aircraft and regional jets and continued growth in the business jet market.” The firm had previously guided for 8% growth in the sector. Alcoa’s 2014 successes have not gone unnoticed, and the company’s future certainly looks brighter than it did last year.
Alcoa stock trumps market
Despite a 2013 that was poor relative to the wider market, Alcoa Inc (NYSE:AA) has been doing exceptionally well in 2014. The firm’s stock has increased by close to 28% since 2014 opened. In a year of compressed returns, that’s amazing performance. In the same period the S&P 500 increased in value by just 2% and actually went negative a couple of times.
The aggressively positive share performance isn’t a sign that there’s only good ahead for Alcoa Inc (NYSE:AA). The company sis not make a profit in 2013, and the outlook for the world aluminium market is not all that clear. Alcoa is beholden to the whims of a world industrial complex that rarely obeys individual orders. Today’s order is a net positive for Alcoa, but there are certainly risks ahead for the company.