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Alcoa Clinches $2.5 Billion Aerospace Contracts with Boeing

Zacks Equity Research

Aluminum giant Alcoa AA has sealed another major aerospace deal. The New York-based company has landed two multi-year supply contracts with Boeing BA worth more than $2.5 billion.

Under one contract, Alcoa will supply multi-material fastening systems for every Boeing platform including 777X (Boeing’s newest commercial airplane) and 787 Dreamliner. Alcoa will make these fastening systems at seven of its global manufacturing plants. This represents Alcoa's largest fastener deal ever.

Under the second deal, Alcoa will supply ready-to-install titanium seat track assemblies for the entire 787 Dreamliner family of airplanes. RTI International Metals, which was acquired by Alcoa earlier this year, has provided seat tracks for the 787-9 and 787-8 variants under a deal signed in 2007. RTI International is now known as Alcoa Titanium & Engineered Products (“ATEP”).

The agreements build on Alcoa's 2014 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’s shares slipped roughly 1% to close at $9.15 last Thursday. The stock is down around 41% this year.  

The latest Boeing contracts follow Alcoa’s big aerospace deals with Airbus and Lockheed Martin LMT, both inked in Oct 2015. Alcoa cut 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.

Alcoa also won a contract worth roughly $1.1 billion to supply titanium for Lockheed Martin’s F-35 Joint Strike Fighter (“JSF”) program. Under the contract, Alcoa will supply titanium plate and billet from a number of operations it gained through its buyout of RTI International. The contract makes Alcoa the titanium supplier for airframe structures for all three variants of the F-35 from 2016 to 2024.

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 U.K.-based leading jet engine components maker 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 Germany-based leading provider of titanium and aluminum structural castings – Tital – has strengthened Alcoa’s position to leverage strong growth in the commercial aerospace sector and capture rising demand for advanced jet engine components made of titanium.

Alcoa’s earnings for the third quarter of 2015 missed the Zacks Consensus Estimate, hurt by lower metals pricing. Revenues slipped by double-digits year over year, and missed expectations. Alcoa's primary metals business swung to a loss in the quarter, hit by lower aluminum prices and a decline in regional premiums.

Weak aluminum pricing may continue to affect Alcoa’s earnings in the final quarter of 2015. 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 Coeur Mining, Inc. CDE, sporting a Zacks Rank #2 (Buy).

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