AVIATIONWEEK & SPACE TECHNOLOGY from Alcoa to Arconic, CEO Outlines Strategy Alcoa Chief Klaus Kleinfeld on How A&D Drives the New Arconic Company

ELECTRONICALLY REPRINTED FROM JUNE 24, 2016 AVIATIONWEEK & SPACE TECHNOLOGY From Alcoa To Arconic, CEO Outlines Strategy Alcoa chief Klaus Kleinfeld on how A&D drives the new Arconic company

saw a multimaterials component targeted toward very exciting growth and innovative markets. One of these is clearly the aerospace structures market, but the arena I found even more exciting is the jet engine market. We built that out in the last [few] years, and last year we felt we were at a stage where we could separate these two entities. Because in reality they are two very, very different companies, requiring very different skills. One thing we saw was that the associated content is extremely closely tied to aluminum, so that led us to the conclusion that the high- tech company needed a new name. If you add the numbers, Klaus Kleinfeld Credit: Alcoa about 40% of Arconic’s revenue is from aerospace.

Late this summer or fall, 128-year-old Alcoa will split into What about fears of an airliner order bubble, dipping two companies, one of which instantly becomes a major suppli- travel results, etc.? Do you think the company’s split still er to the global aerospace and defense industry. Called Arconic, is the right decision? the company will be a primary source for additive manufac- I absolutely do. Just look at some numbers: nine years turing (AM), precision engineering, titanium casting and other of production in the order backlog. Look at the long-term 21st-century manufacturing of aerostructures and engines. fundamentals; one key driver is passenger demand, and More than 90% of all aluminum aerospace alloys were what drives passenger demand is the [global] rise of the developed by Alcoa. Every Western commercial aircraft fly- middle class and urbanization. In China, you see enormous ing today uses Alcoa fasteners, and every one of them—plus growth in tourism. Their citizens are making money now, all Western military aircraft engines—uses Alcoa castings. and they want to see the world. Starting in 2014, Alcoa spent at least $4.3 billion to buy RTI On top of it, we are winning share. Look at engines: We International Metals, Tital and the parent company of Firth can make 90% of the parts. We’ve expanded our portfolio Rixson. In 2015, it signed about $10 billion in long-term sup- via organic growth as well as acquisitions. The big addition ply contracts with Airbus, Boeing and GE Aviation, doubling was Firth Rixson, which doubled our content growth on 2014 deal-making. Klaus Kleinfeld is chairman and CEO of the jet engine and gave us rings and discs that we didn’t Alcoa and will hold the same title at Arconic. He spoke in have before. June with Senior Business Editor Michael Bruno. In April, Alcoa cut its 2016 aerospace market growth AW&ST: What is the strategy behind the company’s sep- forecast from +8-9% to +6-8% and you cited lower orders aration and its creation of Arconic? for legacy airliner models, as well as a more cautionary Kleinfeld: When I became CEO in early 2008, I gave a ramp-up of the new models for the near term. What is presentation to the board and said I see two Alcoas—one happening? that is a commodity company and the other that is a high- The OEMs Boeing and Airbus are saying, “We’ve learned tech company. The high-tech part was very much buried. our lesson, let’s ramp it up very carefully because we want Unfortunately, the [financial] crisis hit, and given our enor- to make sure the supply chain can keep up with us; at the mous exposure to commodities, which took a massive hit, same time, we want to make sure that if something hap- we had to ensure the company survived. But the good news pens, these airplanes are serviceable.” That’s why you see a is we had a true north and we never lost the true north. relatively careful ramp up. At the same time, the new air- I was always talking about building two value engines craft are so attractive that the existing platforms have fallen inside Alcoa. The first targeted a more traditional Alcoa, out of fashion and are [being taken out of service] faster which is bauxite mining, refining, aluminum smelting and than most people predicted. Those two things are happen- energy assets; that became what we call the new Alcoa. I ing, so I see this clearly as a transition. How is the separation going, and when will it be com- through AM is identical to the other piece. This is when it pleted? clicked with us. This is squarely in our core competence; we The second half [of 2016] is the date I’m sticking to. Most know how to do this stuff. things we have under our own control, and they are going extremely well. Once a week I have a review with our Have Airbus and Boeing basically made the improve- separation project management crew. From the beginning, ments they can in using titanium or 3-D printing, or are we assembled a large team to handle all separation issues. I we just at the beginning? What are they telling you, and basically did this to keep the issues of the separation away do you agree? from the business folks as much as possible. I think it was a I see this as a spectrum. AM will not replace everything. very, very good idea. I just looked at the complexity of such Many existing technologies will for a long time—maybe a separation, which is honestly insane. We have more than forever—continue to be the most cost-effective, and there 20,000 critical milestones the team has to handle. will also be hybrid. We have developed a hybrid solution where you can ac- Any more acquisitions? tually print a piece—in near-net shape—and then forge it. We are very well positioned, but our policy is that we The cool thing is it becomes hard during the forging pro- do not speculate. We are focused on creating shareholder cess, so it has the potential to be load bearing. Often with value, and we have a lot in store. many of the advanced AM technologies, it’s very tough to get to load-bearing solutions. That’s why these types of hy- How are you setting up Arconic for future aerospace trends? brids can actually be the solution. We built the new aluminum lithium new-generation fa- I think all the aircraft manufacturers are looking into it; cility in Lafayette [Indiana]. Aluminum lithium, I believe, they are all seeking opportunities. At the same time, they will play an even more important role. The first aluminum- are realistic and are not falling for false [promises]. lithium fan blade ever made is on Pratt & Whitney’s Pure Power jet engine. Among its many advantages, it is 40% How much will Arconic spend on research and develop- lighter than titanium and costs less to install than titanium. ment? Even compared with composites, it’s 10% lighter, with low- That’s a hard one, to be honest; it’s tied to revenue and er installation costs. This is stuff that is really cool. growth opportunities. But I have come to an interesting Then look at [the new jet engine parts facility in La conclusion: It’s more about the talent than the money. If Porte, Indiana], which is a product of organic growth, and you pour money in but neglect to hand-select people and at Whitehall [Michigan], where we expanded on the blade gauge how they will work together, you can pour in all the side with new technology to make blades lighter, as well money in the world and never get “brilliant” out of it. as more aerodynamic. And we are installing a thick plate stretcher in Davenport [Iowa]. The thick plate [technolo- How do you obtain a stellar staff? gy]—probably in combination with titanium but also with I find it best to win people from the universities early on. aluminum lithium—will [be a key factor in] jet structures. So we have very strong—mostly engineering-oriented along Perhaps the coolest thing we built is a powder plant for with some commercial-business emphasis—corporate pro- aluminum metals powder at our technology center in Pitts- gram tie-ins with key universities and professors. Then we burgh. It can produce powder for titanium and nickel al- offer internships to undergraduates, graduates and post- loys, as well as aluminum alloys. This is nothing short of doctoral students so they can work with us for two or three being the “Intelligent Inc.” that you need for AM. months. They get to know us, we get to know them; if all goes well, at the end of the summer we make them an offer. Why is the Pittsburgh site so important? We recognized the importance of [AM] early on. We ex- Are you satisfied with your talent pipeline? perimented with it, and then we realized that the magic— I’m never satisfied. Talent is the magic juice. We aspire the most critical element—lies in the powder. With AM, to be a place where talent wants to be. If you’re a young you need to make sure the quality of the powder is such engineer looking to be at the forefront of dynamic change, that almost every grain is identical to other grains, because tackling diverse challenges that affect the aerospace and au- you never know where the laser hits. And you will never tomotive world—doing good not just for the customer but be able to convince a regulator, if you have a very uneven for the world—with like-minded people, Alcoa/Arconic is grain structure in the powder, that the piece that was made the place you want to be.