Alcoa will acquire Firth Rixson

New York – Alcoa executives have signed a definitive agreement to acquire Firth Rixson, a Sheffield, UK-based global leader in aerospace jet engine components, from Oak Hill Capital Partners, for $2.85 billion in cash and stock. Under the terms of the deal, Alcoa will purchase Firth Rixson for $2.35 billion in cash, plus $500 million of Alcoa stock and an additional $150 million potential earn-out. Alcoa expects to obtain all required regulatory clearances and close the transaction by the end of 2014.

 

The acquisition further positions Alcoa to capture additional aerospace growth with a broader range of high-growth, value-add jet engine components. The acquisition is strategically aligned with the Company’s objective to continue to build its value-add businesses.

 

“The acquisition of Firth Rixson is a major milestone in Alcoa’s transformation,” said Klaus Kleinfeld, Alcoa chairman and chief executive officer. “This transaction will bring together some of the greatest innovators in jet engine component technology; it will significantly expand our market leadership and growth potential.”

 

Firth Rixson grows Alcoa’s annual aerospace revenues by 20%, from $4 billion in 2013 to $4.8 billion on a pro forma basis and is expected to increase the contribution of the high-growth aerospace segment to Alcoa’s value-add revenues from 30% to nearly 35%. Alcoa’s aerospace business is the largest contributor to Alcoa’s value-add businesses, which in 2013 comprised 57% of overall revenues and 80% of segment profits.

 

While the two businesses are highly complementary with limited product overlap, Alcoa also expects to realize significant synergy cost savings, primarily driven by purchasing and productivity improvements, optimizing internal metal supply, and leveraging Alcoa’s global shared services. These cost savings are expected to reach more than $100 million annually by year five. 

 

Firth Rixson has gained share in each successive generation of engine platforms through its strong market position in rings and significant investment in isothermal forging. Isothermally forged parts are increasingly required in jet engines that use elevated turbine temperatures to maximize power output, drive fuel efficiency and reduce emissions. Demand for large isothermal aerospace engine disks is expected to triple in the next eight years driven by strong aerospace build rates. Firth Rixson recently entered this segment with the development of its Savannah, Ga., facility, which includes a 19.5k-ton isothermal press and a 33k-ton conventional forge press for other large aerospace components.

 

Firth Rixson currently holds a leading position in seamless rolled jet engine rings engineered from nickel-based super-alloys and titanium, and it is a major supplier of jet engine forgings. It is also one of the world’s leading suppliers of vacuum-melted super-alloys used to make aerospace, industrial gas turbine, oil and gas products, and structural components for landing gear applications.

 

Approximately 75% of Firth Rixson’s revenues in 2013 were from the aerospace industry, with the balance split between industrial gas turbine, commercial transportation, and oil and gas markets.

 

The Firth Rixson acquisition follows news on June 17, 2014, that Alcoa is investing $25 million at its Alcoa Power and Propulsion facility in Hampton, Va., to scale-up equiax (EEQ) casting technology that reduces the weight of its highest-volume jet engine blades by 20% and improves aerodynamic performance.

 

Alcoa will add equipment for a new production line and modify existing machinery at the Hampton facility to produce the blades. The company will use advanced manufacturing technology such as robotics and digital x-ray for enhanced product inspection. The expansion will begin this month and is expected to be complete by the fourth quarter of 2015. The company expects to add at least 75 new, full-time employees over three years to its current 650 employees who operate two production lines that produce turbine blades for the power generation market and large nickel and titanium structural castings for aerospace engines.

 

Alcoa will receive approximately $2 million in state and local incentives and an additional $1.3 million exemption on sales and use tax for selecting Hampton, Va., for this investment.