Alcoa to Split Soon, Intensifying Focus on Aerospace

By Richard Pettibone, Aerospace & Defense Companies Analyst, Forecast International.

Alcoa’s strategy of expanding its operations in downstream markets has reached its zenith with the announcement that the company will split in two by mid-2016.

Over the past few years, Alcoa has been building up its aerospace business via acquisitions in order to capture a greater share of this booming market. Traditionally, the company has focused on its upstream businesses, primarily aluminum and alumina. However, with a glut in aluminum markets brought on by increased Chinese exports, the company decided to break its operations into two publicly traded corporations. Alcoa’s traditional business, which also includes better-performing bauxite and alumina, will retain the Alcoa name. The new “value-add” company has yet to be named.

Alcoa has been working toward this moment, gradually building its downstream operations via several acquisitions and expansions. As Boeing and Airbus continue to work off their record backlogs, the commercial aircraft sector is expected to be strong for years to come.  In turn, this translates into sustained demand across the spectrum of components used in airline manufacturing. Seeking to capture a larger share of this market, Alcoa recently acquired global titanium leader RTI International Metals, aerospace components manufacturer TITAL, and global jet engine parts manufacturer Firth Rixson.

Along with these purchases, the company has been expanding its facilities in the United States.  The company has expanded existing operations, opening the world’s largest aluminum-lithium facility in Lafayette, Indiana, increasing jet engine parts production in La Porte, Indiana, and Hampton, Virginia, and adding advanced aerospace plate manufacturing capabilities in Davenport, Iowa. In the near future, the company plans to double the coatings capacity at its jet engine component facility in Whitehall, Michigan.

All told, the new $14.5 billion value-add company will derive over 40 percent of its revenue from aerospace and gas turbine markets. The remainder of the new firm’s interest will be in the automotive, commercial transportation, and construction industries.

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