Alcoa Fastening Systems (AFS), a unit of Alcoa (
AA
), has announced a new agreement for strategic technology and
commercial cooperation with Commercial Aircraft of China Ltd.
(COMAC). COMAC is a manufacturer of large passenger aircraft in
China and has ambitions of competing with Boeing and Airbus. The
deal will help Alcoa gain a stronger foothold in the Chinese
aerospace market, which is one of the world's fastest growing
markets.
Under the new agreement, AFS will provide COMAC with technical
assistance in fastener and assembly tooling selection, joint design
consideration and quality system management. The technical
assistance will include engineering, design and training. In
return, COMAC will purchase a significant chunk of its requirement
for fasteners from AFS. These fasteners will be used in the
production of COMAC's C919 aircraft. AFS already has a prior
technology cooperation agreement with COMAC which was signed in
2009. It aimed at examining advanced aluminum structural
concepts, designs and alloys for the C919 aircraft.
The deal is good news for Alcoa as AFS is part of its Engineered
Products and Solutions division which focuses on value-added
products to generate higher margins for the company. Building
specialization in niche segments will help the company stay ahead
of competition and mitigate the adverse effects of pricing
volatility in the aluminum market.
See Full Analysis for Alcoa Here
Alcoa's total revenues for 2012 were $23.7 billion, of which
$5.5 billion were contributed by the Engineering Products and
Solutions division. Although total revenues declined in 2012 from
the previous year's figure of $24.9 billion, revenues of the
Engineered Products division rose from $5.3 billion in 2011. Not
only that, adjusted EBITDA margins for the division reached an
all-time high of 19% in 2012. ((
Q4 2012 Earnings Presentation
, Alcoa Website))
While this limited data doesn't reveal a trend by itself, it
does show the division's ability for resilience in the face of
adverse market conditions. We say so because the prices of aluminum
in 2012 fell drastically from their 2011 levels. ((
LME Aluminum Price Graph
, LME))
In 2011, the Fastening Systems business accounted for $1.3
billion of total revenues of $5.3 billion for the Engineering
Products and Solutions division. We expect the figures for 2012 to
be available soon.
Fasteners for the aerospace business in China will be
manufactured at Alcoa's facility located in Suzhou. Among other
products, this facility produces fasteners of two kinds: panel and
pin.
The COMAC deal will help Alcoa meet its 2013 targeted revenues
of $6.2 billion in the Engineered Products division. In the most
recent conference call with analysts, Alcoa's management stressed
on research, innovation, and specialized products to drive future
growth for the company. Also, in the company's Investor Day
presentation in November, new generation fastening systems were
identified as one of the areas to drive future organic growth.
We have a Trefis price estimate for Alcoa of $8 after the
fourth quarter earnings results.
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