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Alcoa buying jet engine components maker Tital to help expand aerospace unit

| Monday, Dec. 15, 2014, 11:09 p.m.

Alcoa Inc. is buying Germany-based Tital, a company that makes jet engine components, as the aluminum maker diversifies its business beyond its smelting and mining roots into higher-profit manufacturing of finished parts that target aerospace industry.

Alcoa, based in New York with key operations in Pittsburgh, did not disclose a purchase price for Tital but said the privately held company had revenue last year of about $96 million.

Tital makes castings used in aircraft engines and airframes, Alcoa said. More than half of its revenue last year came from sales of titanium products, which can handle extreme heat and pressure.

“This acquisition is the next step in building a powerful aerospace growth engine,” Alcoa CEO Klaus Kleinfeld said.

Both companies' boards approved the deal, which is expected to close in the first quarter next year.

Some analysts are skeptical about the impact Tital will have on Alcoa, which posted revenue of $23 billion in 2013.

Charles Bradford, president of Bradford Research Inc. in New York, called revenue from Tital a “rounding error” for Alcoa but said the deal “continues their philosophy of trying to grow their downstream business and get away from exposure on the commodity aluminum business.”

John Tumazos, an analyst with Very Independent Research in Holmdel, N.J., said, “It's nice that Alcoa bought Tital, but it's probably not going to be the thing that moves the needle.”

Alcoa's shares closed at $14.93, up 6 cents, or 0.4 percent.

Investors have been bullish on the company's diversification strategy, pushing its stock up 40 percent since the start of the year.

In October, Alcoa reported improved third-quarter net income of $149 million, or 12 cents per share, up from $24 million, or 2 cents per share, a year earlier. The company cited more profitable aerospace and automotive markets as a factor in the better earnings, which have offset falling aluminum prices.

Alcoa has a $1 billion contract to supply sheet and plate products to Boeing Co. for commercial airplanes, and a $1.1 billion deal with jet engine maker Pratt & Whitney to provide components. Last month, it completed a $3 billion acquisition of United Kingdom-based Firth Rixson Ltd, a maker of jet engine components.

In the auto industry, Alcoa has a contract with Ford Motor Co. to make aluminum sheet for the body of the F-150 truck.

This month, Alcoa announced a “breakthrough” technology allowing it to make aluminum sheet that's stronger and easier to shape than steel, the primary metal used in cars and trucks. Automakers are turning to lighter-weight materials to meet stricter government fuel economy targets.

Automotive and aerospace markets may have more attractive profit margins now, Tumazos said, but aircraft makers and car companies have histories of squeezing suppliers when times get tough.

“Aerospace does not guarantee profits,” he said.

Tumazos predicts demand for aluminum will start to grow next year, which will boost aluminum prices and Alcoa's profits.

“We think the world aluminum business is getting better, so we don't think they necessarily need to get away from it,” he said.

Alex Nixon is a Trib Total Media staff writer. Reach him at 412-320-7928 or anixon@tribweb.com.

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