Aluminum giant Alcoa AA has clinched yet another major aerospace contract. The New York-based company has landed a long-term supply agreement with Boeing BA, marking its fourth multi-year contract with the aerospace giant in a series of recent deals.
Under the new contract, Alcoa will supply multi-material aerospace parts to Boeing. The company will provide components for the 777X (Boeing’s newest commercial airplane), the 787 Dreamliner and the 737 MAX that is scheduled for first delivery in 2017. With this latest deal, Alcoa has secured roughly $10 billion in aerospace contracts since the beginning of 2015.
Under the deal, Alcoa will supply differentiated components (including the wing, fuselage and landing gear) for Boeing’s airplanes. These include advanced titanium landing gear parts and complex titanium nacelle fittings for the 737 MAX, which are produced leveraging the capabilities gained through Alcoa’s Firth Rixson acquisition. The deal also includes aluminum-lithium extrusion produced at Alcoa’s new Lafayette, IN, facility for the 777X cargo floor, which would help save weight and improve corrosion resistance.
Alcoa’s shares gained around 3.3% in the trading session last Thursday, closing the day at $7.00. The stock is down roughly 26% year-to-date.
The latest contract follows Alcoa’s two multi-year aerospace deals (worth more than $2.5 billion) with Boeing for fastening systems and titanium seat track assemblies, inked in Dec 2015. Alcoa, in Sep 2014, also cut an aluminum sheet and plate deal with Boeing worth more than $1 billion. With that deal, Alcoa became Boeing’s sole supplier for wing skins on all of its metallic structure airplanes.
Alcoa also landed big aerospace deals with Airbus and Lockheed Martin LMT in Oct 2015. The company inked a $1 billion deal with Airbus to supply the latter titanium, steel and nickel-based superalloy aerospace fastening systems. The deal marked Alcoa’s biggest fastener contract ever with Airbus. Moreover, Alcoa won a contract worth roughly $1.1 billion to supply titanium for Lockheed Martin’s F-35 Joint Strike Fighter (“JSF”) program.
Alcoa, which continues to grapple with weak aluminum pricing, is actively pursuing its aerospace expansion strategy. The purchase of RTI International has broadened Alcoa’s titanium offerings and added advanced technologies and materials to its portfolio.
Moreover, the buyout of Firth Rixson has strongly placed Alcoa to capture additional growth in the growing aerospace market through a broad spectrum of high-growth, value-add jet engine components. In addition, the acquisition of Tital has strengthened Alcoa’s position to leverage strong growth in the commercial aerospace sector.
Alcoa swung to a loss in the fourth quarter of 2015, hurt by charges related to restructuring and lower metals pricing. Alcoa's primary metals business posted a loss in the quarter, hit by lower aluminum prices and a decline in regional premiums. Headwinds from lower prices more than offset gains from productivity actions in the quarter.
The aluminum price rout has triggered the company’s move to separate its smelting and refining business from those that cater to rapidly growing aerospace and automotive markets. The separation, which is expected to close in second-half 2016, will mark the completion of Alcoa’s multi-year transformation.
Alcoa is a Zacks Rank #4 (Sell) stock.
A better-ranked company in the mining space is Agnico Eagle Mines Limited AEM, sporting a Zacks Rank #2 (Buy).
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