Alcoa in a Good Position to Capture Strong Aircraft Demand



Aircraft demand

In the previous parts, we discussed the demand indicators of the automobile industry. Now, we’ll explore how the aircraft manufacturing sector is shaping up and how Alcoa (AA) is placed to capture the strong demand from the aircraft industry.

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Order books swell

Major aircraft manufacturers, including Boeing (BA) and Airbus, have strong order books. According to estimates, there is a nine-year production backlog for commercial aircraft. Looking at the performance of individual companies, Boeing delivered a record 197 planes in 2Q15, bringing its total 2015 deliveries to 381. Boeing has booked a total of 380 new orders so far in 2015.

Airbus has delivered 304 aircraft in the first six months of 2015, and it has a robust backlog of 6,430 aircraft.

Strong aircraft delivery and order books bode well for aluminum demand. General Electric (GE) is a leading supplier to aircraft manufacturers. It currently forms 10.15% of the Consumer Discretionary Select Sector ETF (XLY) and 5.07% of the SPDR Dow Jones Industrial Average ETF (DIA).

Alcoa’s strong position

The above chart shows some of the key acquisitions completed by Alcoa. These acquisitions have enhanced Alcoa’s ability to serve the fast-growing aerospace industry. Commercial aircraft demand is growing at a steady pace, and all major aircraft manufacturers are running their production at full throttle to meet the pending orders.

Alcoa is also investing in newer technologies and products. It has opened the world’s largest aluminum–lithium facility in Indiana, which will produce components for the aerospace industry.

These measures would add shareholder value over the long term. Alcoa has recently completed the acquisition of RTI Metals and also realigned its organizational structure. We’ll discuss this in detail in the next part.


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