How RTI International Metals fits into Alcoa’s aerospace strategy



Alcoa’s aerospace strategy

Aerospace companies are some of Alcoa’s (AA) key customers. Aerospace is also one of Alcoa’s most profitable segments. Precision Castparts Corp. (PCP), Constellium N.V. (CSTM), and Alleghany Technologies (ATI) also supply components to aerospace companies.

Alcoa acquired Firth Rixson last year. Firth Rixson is a leading jet engine component manufacturer. Now Alcoa has announced the acquisition of RTI International Metals (RTI).

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RTI International Metals

RTI is a supplier of titanium and specialty metals products to aerospace, defense, and energy sectors. The above chart shows the key highlights of the RTI transaction. As you can see, the deal values RTI at an enterprise value of $1.5 billion. This is a complete stock-for-stock transaction.

RTI shareholders will receive 2.8315 shares of Alcoa for every share of RTI. However, the Law Offices of Vincent Wong has commenced a probe into a potential breach of fiduciary duty by the RTI board of directors. The investigation probes whether Alcoa underpaid for RTI International Metals.

Strategic fit

RTI fits into Alcoa’s strategy of growing its value added portfolio. RTI will enhance Alcoa’s portfolio of titanium offerings. Last year, Alcoa acquired TITAL, a privately held German company. TITAL is a leader in titanium and aluminum structural castings for aircraft engines. These acquisitions enhance Alcoa’s presence in advance jet engine components.

Alcoa has also opened the world’s largest aluminum-lithium facility in Indiana. This facility will produce components for the aerospace industry. The alloy offers increased strength-to-weight ratio compared to conventional aluminum products. Alcoa has already contracted $100 million in revenues from this plant for 2017.

Currently, Alcoa forms 3.30% of the Materials Select Sector SPDR Fund (XLB).

In the next part of this series, we’ll look at how RTI International Metals will impact Alcoa’s revenue.


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