Alcoa Inc (AA) Considers Firth Rixson Will Complement its Business

Alcoa Inc (NYSE:AA) is shifting focus, and indeed it has travelled a pretty much distance over the last two years to establish itself as a chief aerospace component maker. But, recently the company took a major step to get a strong foothold in the aerospace business, which is by signing off a deal with the UK-based jet engine parts maker, Firth Rixson, worth $2.85 billion. The decision by the company received positive response from the market as its shares jumped close to 3% on Thursday. During an interview on Fox Business, Alcoa’s CEO Klaus Kleinfeld discussed about the new takeover and the future outlook about aluminium.

Alcoa Inc (NYSE:AA)

Future Calculation

Kleinfeld explained the reason of Alcoa Inc (NYSE:AA)’s interest in Firth Rixson on account of the latter’s dominant role in the aerospace sector. Kleinfeld said that 75% of Firth Rixson’s revenue comes from aerospace, where a majority of it is from jet engines, which is a critical part of new models and new planes. He said that Alcoa holds expertise in blades and Firth Rixson is an expert in disks and rings, and thus, the acquisition complements the company’s business.

At the same time Kleinfeld is sure that the cost of $2.85 billion for acquisition is not too much.

“When you do the calculations, you can’t look at today’s revenues, because Firth Rixson has invested massively into future technologies, that’s now coming online.”

Kleinfeld went on to state that Firth Rixson has recently invested in a very unique technology and they will start the production this year, the revenues of which will reflect next year. He said that the revenues in 2016 will be $1.6 billion and that is the number they factored in.

Value And Cost

Another interesting highlight about Alcoa Inc (NYSE:AA) is that it has been able to maintain its value despite a lackluster performance by aluminium as a commodity. In response, Kleinfeld said that, first of all, the company has built its own value at business. He said that todays value of the business makes 57% of the revenues and 80% of the profits. Secondly, he said that the company has worked really hard to come down to its cost position. Kleinfeld said, “I can’t influence the  price in commodities, but what I can influence is the cost position that we have.” Further, Kleinfeld sees positive environment building up for aluminium prices ahead.

Disclosure: none

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