Alcoa’s Aerospace components unit has secured yet another long-term strategic supply agreement, this time with a major aircraft engine supplier. Today the company announced that it had signed a long-term agreement with General Electric’s Aviation business unit valued at more than $1.5 billion over the contract period. Under this agreement, Alcoa will supply advanced nickel-based superalloy, titanium and aluminum components supporting a broad range of GE Aviation engine programs.
Alcoa previously announced the split-out of a new Value-Add Company in the second-half of this year. This split new company was formed to take advantage of such long-term supply agreements within the commercial aerospace industry. After financially struggling with its traditional aluminum based metals businesses, the company has aggressively turned towards innovation and acquisitions to position itself as an innovate metals supplier in key growth industries.
In 2015, Alcoa announced nearly $9 billion in strategic supply agreements. This included a $1 billion deal to supply aircraft components such as bolts, rivets and other specialty fasteners with Airbus in October of 2015, and a $1 billion deal to supply wing skins and aluminum plate products used in wing ribs, among other components, to Boeing in September of 2014.
In March of 2015, Alcoa acquired RTI International Metals, described as one of the world’s largest producers of fabricated titanium products in a stock-for-stock transaction valued at approximately $1.5 billion. The RTI acquisition followed the 2014 acquisition of Germany based titanium and aluminum castings producer Tital, and U.K. jet-engine parts maker Firth-Rixson. RTI’s business was centered on long-term supply of titanium fabricated parts that make-up landing gears engines and airframes for both Airbus and Boeing aircraft.
With current huge multi-year order backlogs, Alcoa’s strategic moves into key strategic commodity areas of commercial aircraft production assure a faster and perhaps more profitable growth prospect. The metals producer is also positioning itself to be a more strategic supplier to the global automotive industry, helping to pave the way for use of lighter metals in automobile product design and functionality.
As the pressure mounts on various commercial aerospace supply chains to step up delivery volumes for the vast backlogs of newly designed commercial aircraft, strategic suppliers of key commodities and advanced components will ultimately be the linchpins for successful customer fulfillment.
Thus Alcoa’s strategies and fortunes are pinned toward being a strategic supplier within this industry as well as other industries leveraging lighter and more innovative metals and forgings. The company has also worked with Ford Motor Company as a supplier of more structural aluminum based assemblies. Ford will begin using Alcoa’s Micromill material in the 2016 Ford F-150 and plans to increase its use over the next several years on a range of vehicle components and future platforms. It is projected Ford’s use of Micromill material on its vehicles will more than double from 2016 to 2017.
Production innovation as become far more dependent on supplier innovation, and such innovation increasingly results in longer-term strategic supply agreements to assure supply and differentiation in products. When explosive industry growth is fueled by product design innovation, such as what has occurred in commercial aerospace and now automotive, partnerships with strategic suppliers become even more important.