Boston, MA 07/14/2014 (wallstreetpr) – Alcoa Inc (NYSE:AA), an aluminum company that has struggled with poor metal prices in the recent past, has announced a $1.1 billion business deal that could also be a stepping stone to some great business opportunities in the aerospace in the future.
The company announced entering a deal with United Technologies Corporation (NYSE:UTX)‘s Pratt & Whitney unit. Under the deal, Alcoa will play a keen role in the development of more fuel efficient jet engine known as PW1100G, which is suitable for commercial and military jets. The agreement is expected to run for 10 years while deepening Alcoa’s bet on aerospace sales.
Diversification efforts
The deal comes at a time when Alcoa Inc (NYSE:AA) is trying hard to diversify its operations so as to grow revenue while reducing dependence on metal sales. The company is diversifying into aerospace and auto industries where it supplies value-add components that are mainly geared towards achieving fuel efficiency. Such diversification is important in helping the company to offset the impact of poor aluminum prices.
Improved performance
Because of improvement in aluminum sales and prices coupled with the ongoing diversification, the company reported last week its return profit in 2Q2014.
The agreement with Pratt will see Alcoa Inc (NYSE:AA) provide aluminum fan blades for PW1100G engine. According to the company’s CEO Klaus Kleinfeld, the deal to supply fan blades will see the company venture into an area where no materials scientist has gone. The fan blades are expected to be of higher value while featuring complex design.
The design of fan blades from aluminum alloy signals an evolution in the industry because platinum was the material of use in use blades before. However, for the sake of cost and fuel efficiency, aluminum is gaining widespread acceptance in the aerospace, and that is something that Alcoa sees as great business opportunity.
Alcoa Inc (NYSE:AA) intends to purchase Firth Rixson for $2.85 billion, a move that is expected to strengthen its position in the aerospace and more so in the involvement in PW1000G engine.
