Alcoa AA has completed the takeover of Germany-based Tital – a leading provider of titanium and aluminum structural castings for aircraft engines and airframes. Financial terms of the deal, which were announced in Dec 2014, were not disclosed.
The aluminum giant’s shares rose as much as 2.5% in the trading session yesterday, before closing the day 1.5% higher at $15.18.
The move to buy Tital is in sync with Alcoa’s goal to profitably grow its aerospace franchise and is part of the company’s portfolio transformation strategy as it gradually shifts its focus toward the fast-growing aerospace and automotive markets.
Tital derives more than half of its revenues (around $100 million in 2014) from titanium products. Its sales from titanium has been forecast to jump 70% over the next five years as jet engines makers increasingly look to titanium solutions for engine structural components. Titanium – which can endure extremely high heat and pressure – is a lighter substitute to steel, offering enhanced energy efficiency and better performance.
Alcoa, which was ousted from the Dow Jones Industrial Average in 2013 partly due to its tepid stock performance, is increasingly looking for expansion opportunities beyond its legacy primary aluminum business and diversify into other materials such as those (nickel and titanium-based) used to make aircraft parts.
The Tital acquisition is expected to fortify Alcoa’s position to leverage strong growth in the commercial aerospace sector and capture rising demand for advanced jet engine components made of titanium. Alcoa envisions the commercial jet sector to grow at a compounded annual rate of 7% through 2019. Roughly 70% of Tital’s sales are expected to come from commercial aerospace in 2019.
Tital’s titanium and aluminum structural components are used on existing and next-generation jet engines and airframes. The acquisition will boost Alcoa’s aluminum casting capacity and help it establish titanium casting capabilities in Europe. The company will capitalize on Tital’s strong associations with European engine and aircraft makers including Airbus to enhance its customer relationships in the region.
Alcoa is actively pursuing its aerospace expansion strategy. The company, in Nov 2014, closed its purchase of U.K.-based leading jet engine components maker Firth Rixson in a cash and stock deal worth $2.85 billion. The acquisition has allowed Alcoa to penetrate into a highly specialized segment of jet engine forgings.
In addition, the $1.1 billion agreement to supply key parts (including forgings) to Pratt & Whitney – a unit of United Technologies Corp. UTX – also underscores Alcoa’s continued efforts to strengthen its aerospace business. Alcoa has also cut a long-term deal with Boeing BA to supply aluminum sheet and plate products.
Alcoa expects the aerospace market to grow 9%-10% in 2015 on the back of strong demand for large commercial aircraft, regional jets and jet engines.
Alcoa is a Zacks Rank #3 (Hold) stock.
A better-ranked stock in the mining space is NovaCopper Inc. NCQ, carrying a Zacks Rank #1 (Strong Buy).
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