While many of its aluminum products may be lightweight, Arconic (formerly Alcoa Inc.) is anything but. Its products include industrial gas turbine, oil and gas equipment, aerospace and automotive components, and sheet aluminum for beverage cans. Nonaluminum products include precision castings and aerospace and industrial fasteners. In 2016 Alcoa Inc. separated into two public companies, Arconic (a value-added company making high-end aluminum products) and an upstream company -- Alcoa Corp., one of the world's top producers of alumina (aluminum's principal ingredient from bauxite) and aluminum.
Before the 2016 breakup, Alcoa Inc. was a global company operating in 30 countries, doing more than half of its business in the US; Australia, and Spain made up its largest international markets.
The company had operations in Australia, Belgium, Brazil, Brunei, Canada, China, France, Germany, Greenland, Guinea, Hungary, Iceland, India, Indonesia, Italy, Jamaica, Japan, Mexico, Morocco, the Netherlands, Norway, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Suriname, Switzerland, Trinidad & Tobago, the UK, the United Arab Emirates, the US, and Vietnam.
Before the spinoff, Alcoa Inc. had five reportable segments: Alumina, Engineered Products and Solutions, Global Rolled Products, Primary Metals, and Transportation and Construction Solutions.
Alcoa’s upstream refinery system included the mining of bauxite, which is then refined into alumina. More than half of Alcoa’s alumina production is sold under supply contracts to third parties worldwide.
Engineered Products and Solutions (Alcoa’s downstream operations) produces titanium, aluminum, and super alloy investment castings; forgings and fasteners; aluminum wheels; seamless rolled rings; and nickel alloys. These products are used in the aerospace, automotive, building and construction, commercial transportation, and power generation markets.
Primary Metals produced primary aluminum used by Alcoa’s fabricating businesses and sold to external customers, aluminum traders, and commodity markets. This segment included aluminum powder, scrap, and excess power, and aluminum derivative contracts and buy/resell activity.
Global Rolled Products (Alcoa’s midstream operations) produced and sold aluminum plate and sheet. It also produced foil at one plant in Brazil.
Transportation and Construction Solutions (Alcoa’s downstream operations) produced integrated aluminum structural systems, architectural extrusions, and forged aluminum commercial vehicle wheels used in nonresidential building and construction and commercial transportation end markets.
Aluminum (primary and fabricated) and alumina accounted for 80% of Alcoa’s 2015 revenues.
Sales and Marketing
Alumina is mainly sold directly to smelter customers or industrial chemical producers. Some third-party sales are done though agents, alumina traders, and distributors. The company sells Engineered Products and Solutions products directly to customers and through distributors.
Transportation and Construction Solutions’ hard alloy extrusions products (for aerospace, automotive, commercial transportation, and industrial products markets) are also sold directly to customers and through distributors as well as by agents and alumina traders.
The Primary Metals segment manages aluminum produced by Alcoa and used internally is transferred to other segments at prevailing market prices. The sale of primary aluminum represents more than 90% of this segment’s third-party sales.
Global Rolled Products produces rigid container sheet, which is sold to the packaging and consumer market and is used to produce aluminum beverage cans. It also makes sheet and plate used in the aerospace, automotive, commercial transportation, and building and construction markets.
In 2015 Alcoa Inc.'s net revenues decreased by 6% due to the absence of sales related to capacity that was closed in midstream and upstream operations, lower average realized price for aluminum in both the upstream and midstream operations and for alumina in the upstream operations, and lower energy sales as a result of a drop in pricing and unfavorable foreign currency movements.
That year the company reported a net loss of $322 million (compared to net income of $268 million in 2014) mainly due to lower net revenues, an increase in provision for income taxes (due to a higher amount of discrete income tax charges and nondeductible items), and the presence of impairment of goodwill, related to the annual impairment review of the soft alloy extrusion business in Brazil.
In 2015 operating cash flow decreased by 5%.
As prices for alumina and aluminum continue to be low, Alcoa Inc. was trying to soften the blow of declining prices by growing its downstream and engineering businesses. For example, it developed a new, higher-strength wheel alloy (MagnaForce) for next generation wheels, and has launched a more corrosion-resistant, environmentally friendly Dura-Bright EVO surface treatment.
It was focusing on the aerospace industry and on its Engineered Products and Solutions (EPS) division, which makes aerospace components. Specific objectives of Alcoa Inc. for long-term investment strategy included reducing the volatility of pension assets relative to pension liabilities and achieving risk factor diversification across the balance of the asset portfolio.
Alcoa Inc. has made, and may continue to plan and execute, acquisitions and divestitures and take other actions to grow or streamline its portfolio.
In 2016 the company separated into two independent, publicly traded companies. One (Alcoa Corp.) comprises the Alumina and Primary Metals segments and the other company (Arconic) is made up of the Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions segments.
To pay down debt, in 2017 Arconic sold 23.4 million of the Alcoa shares it received when the companies split up (or about 60% of its total stake) for $890 million.
To raise cash, in 2016 the company agreed to sell its 20% stake in the operator of an Australian natural gas pipeline for about $154 million.
In 2015 the company sold assets in Russia, including a rolling mill located in Belaya Kalitva (to a wholly owned subsidiary of Stupino Titanium) for $30 million. That year it moved Wheel and Transportation Products and Building and Construction businesses to form a new Transportation and Construction Solutions group.
To meet growing demand in both the aerospace and commercial transportation end markets, the company has initiated expansion projects. In 2014 Alcoa completed a $300 million expansion at its Davenport, Iowa, facility dedicated to supplying aluminum sheet products to the automotive industry. It also opened the world’s largest aluminum-lithium plant in Lafayette, Indiana, where it produces advanced, third-generation aluminum-lithium alloys for the aerospace industry. (Aircraft makers are increasingly turning to lighter and stronger aluminum-lithium alloys, which are less expensive than titanium and composites).
In 2014 Alcoa opened its expanded wheel-manufacturing plant in Hungary to enable Alcoa to meet growing European demand for its lightweight, durable, low-maintenance aluminum truck wheels.
On the divestiture side of the ledger, in 2014 the company announced it will permanently close the remaining two potlines at its Massena East smelter in New York and permanently close its Point Henry aluminum smelter and two rolling mills in Australia as well as its Portovesme primary aluminum smelter, both due to high costs. That year it also sold its aluminum rod plant in Bécancour, Quebec; its 50.3% ownership stake in the Mt. Holly smelter located in Goose Creek, South Carolina; and three rolling mills located in Spain (Alicante and Amorebieta) and France (Castelsarrasin) to a subsidiary of Atlas Holdings LLC. To save costs, in 2014 Alcoa also sold its ownership stake in the Jamalco bauxite mining and alumina refining joint venture in Jamaica.
Mergers and Acquisitions
To expand Alcoa Inc.'s range of titanium offerings and add advanced technologies and materials (primarily related to the aerospace end market), in 2015 the company acquired RTI International Metals, a global supplier of titanium and specialty metal products and services for the commercial aerospace, defense, energy, and medical device markets, in a $870 million deal.
It also bought Germany-based aluminum and titanium castings maker TITAL (which has $100 million in annual sales) for $204 million. This acquisition expands Alcoa's existing aluminum-casting capacity and increases its capacity for advanced jet engine components made of titanium, while establishing its titanium-casting capabilities in Europe.
In a major expansion of its downstream manufacturing activities, in 2014 Alcoa acquired UK-based aerospace-component maker Firth Rixson for $2.85 billion. This acquisition strengthens Alcoa’s robust aerospace portfolio and positions the company to capture greater profitable growth from its expanding value-add business. The transaction doubles Alcoa’s average revenue content on high-growth engine programs. Accelerating Alcoa’s transformation to a multimaterial enterprise, the acquisition increases its offerings made of nickel-based superalloys, titanium, stainless steel, and advanced aluminum alloys, produced using the most advanced isothermal forging technology and ring production capabilities.