Alcoa Inc (NYSE:AA) announced on Monday, July 12th, that it had signed a $1.1 billion deal to provide engine parts to United Technologies Corporation (NYSE:UTX)’s Pratt & Whitney division.
The 10-year supply agreement will give Alcoa a major supplier for Pratt & Whitney’s new PW1100G geared turbofan engine and other commercial and military turbines. A statement released by the company today notes that over 5,000 of the highly fuel-efficient PW1000Gs have been sold even though aircraft using the engine do not enter service until next year.
Creating Strategic Value With Joseph Calandro Jr.
ValueWalk's Raul Panganiban interviews Joseph Calandro Jr., Managing Director of a global consulting firm and fellow of the Gabelli Center for Global Security Analysis at Fordham University. Q2 2020 hedge fund letters, conferences and more Interview with Joseph Calandro Jr. ValueWalk's . . . SORRY! This content is exclusively for paying members. SIGN UP HERE Read More
Alcoa Inc (NYSE:AA)’s deal with Pratt & Whitney means the firm will also be providing parts for the V2500 engine used on current Airbus model A320s, and the GP7200 powering some A380 super jumbos. Other work includes delivering parts for the F135 engine propelling the Lockheed Martin Corp. F-35 Joint Strike Fighter.
Alcoa diversifying into commercial aerospace
Analysts point point out that Alcoa Inc (NYSE:AA) has been trying to diversify over the last couple of years, and has looked to commercial aerospace for future sales growth in its restructuring to adapt to lower aluminum prices. In last week’s earnings report, the firm said it returned to profit in the second quarter as all of its business segments were profitable.
The agreement with Pratt & Whitney means Alcoa will be providing the PW1000G’s aluminum fan blades, whose weight and complex shape is key to engine efficiency, according to Alcoa’s Chairman and CEO Klaus Kleinfeld. Alcoa was a part of the design team for the innovative blades as part of its initiatives towards making higher value parts.
“We’re going where no materials scientist has gone before,” Mr. Kleinfeld explained with a laugh.
Aircraft engine fan blade have usually been made of titanium in the past, but lightweight composite metal designs are becoming more and more popular.
Alcoa Inc (NYSE:AA) has been working hard to increase growth in “engineered products”, such as lightweight fasteners used in making aircraft, for example. Engineered products represented just over 25% of the company’s sales last year, up from just 21% in 2008.
The firm’s aerospace plans are largely focused on engine parts designed to make airplanes more efficient. This strategy is related to he fact that Airbus and Boeing are developing fewer new planes and concentrating on selling cheaper-to-develop upgrades of existing models.