Alcoa Inks $1.1B Supply Pact with Pratt & Whitney

Aluminum giant, Alcoa Inc. AA has entered into a $1.1 billion, ten-year agreement with Pratt & Whitney, a unit of United Technologies Corp. UTX, for jet engine components. Alcoa's shares went up following the news and hit a new 52-week high of $16.25 yesterday.

Per the agreement, Alcoa will supply key parts for Pratt & Whitney's engines, including the forging for the first ever aluminum fan blade developed for Pratt & Whitney's PurePower engines. Alcoa utilized its proprietary alloys and unique manufacturing procedures to come up with the code on forging an aluminum fan blade that is lighter and enables better fuel efficiency. For the PurePower engines, Alcoa is developing a fan blade forging using its most advanced aluminum-lithium alloy.

According to the deal, Alcoa will provide components for Pratt & Whitney's PurePower PW1000G, V2500, GP7000 and several other regional jet and military engines. The PurePower engine will be used for aircrafts, including the next-generation Airbus (EADSY) A320neo. The agreement includes United Technologies “One Company” terms and conditions that provide for a common contracting approach between both companies, thereby facilitating future collaboration.

Alcoa plans to utilize aluminum and aluminum-lithium from its Pittsburgh, PA and Lafayette, IN facilities for the front fan blades, which will be produced using proprietary manufacturing processes at its Cleveland, OH plant.

As per, Pratt & Whitney, the deal will allow it to make double-digit improvements in fuel efficiency, noise and environmental emissions, and the hybrid metallic fan blade will help in reducing weight and cost. With this deal, Pratt & Whitney looks forward to increasing the production of its next-generation engines by employing Alcoa's expertise in delivering high-quality parts, while meeting cost targets.

Alcoa holds a Zacks Rank #2 (Buy).

Some better-ranked stocks in the mining sector include Kazakhmys PLC (KZMYY), Paramount Gold and Silver Corp. PZG. Both carrying a Zacks Rank #2 (Buy).