Alcoa Inc (NYSE:AA) Buys Into Aerospace Supplies

Metal manufacturer, Alcoa Inc (NYSE:AA), which is big in aluminum, announced a deal to buy RTI International Metals, Inc. (NYSE:RTI), a step that will enable it to expand in aerospace and other markets. The transaction will be fulfilled through stock and cash. Alcoa has been trying to diversify its operations, especially through value-add products for auto and aerospace industries.

Read why analyst may see a swing in the momentum for AA.

In addition to aerospace, RTI also caters for medical, military and energy markets.

According to Alcoa Inc (NYSE:AA)’s CEO, Klaus Kleinfeld, the acquisition of RTI International Metals marks a shift to a higher gear in the transformation of the company. He cited that the awesome thing in the deal is that it combines two innovators in the field of process technology and material science.

Cost-saving benefits

Alcoa agreed to pay $41 for each share of RTI International Metals and also assume liabilities. As such, the enterprise value of the deal has been cited as about $1.5 billion, which Alcoa will meet through cash and stock. Besides the benefit of supporting Alcoa’s expansion in aerospace market, the acquisition of RTI International Metals is also expected to come with some cost benefits. By 2019, Alcoa hopes to have saved $100 million as a result of the deal.

Revenue contribution

RTI International Metals is also expected to make significant contribution to Alcoa Inc (NYSE:AA)’s top-line. The titanium producer is expected to bring in $1.2 billion of revenue by 2019. The company generated $794 million of revenue in 2014, most of which came from military and aerospace supplies.

On its part, Alcoa Inc (NYSE:AA) generated $23.9 billion of revenue in 2014. Aluminum is the largest revenue contributor in the company. The unit that smelts and raw aluminum and processes raw materials accounted for 40% of the total revenue in 2014. The other unit that rolls aluminum sheets for beer cans and cars was responsible for 25% of the total revenue.

With automakers seeking to build more fuel-efficient vehicles, Alcoa is aggressively focusing on value-add materials to tap opportunities in the market.

David Barry

David Barry

Barry is a senior journalist at Us Markets Daily. He reports, shoots and edits many of his own stories by himself.