Alcoa's Splashy New Alloy

It has been less than a week since Alcoa(AA) showcased its next-generation aluminium alloy at the Paris Air Show.

The aerospace industry seems to agree that these new alloys hold plenty of promise. Airbus decided to sign a multi-year contract worth $1 billion with the aluminum industry leader, which a will supply its new alloys for almost all Airbus commercial aircraft. The company competes with other international metals and mining giants like Rusal, Rio Tinto(RIO), BHP Billiton(BHP) and Chalco(ACH).

Our price estimate for Alcoa at $19.76 implies a premium of about 30% to the market price.

Alcoa hit the right note at this year's Paris Air Show by showcasing the revolutionary fuselage panel made by Spirit AeroSystems using the new alloy. Airbus and other aircraft manufacturers are always looking for ways to reduce aircraft weight to improve fuel efficiency without sacrificing strength.

Alcoa claims that an aircraft made with the new alloy would be about 10% lighter and would improve fuel efficiency by as much as 12%. The alloy also lends itself to manufacturing lighter and more efficient jet engines, which are faster to produce and require less maintenance.

The Airbus contract came almost immediately after the demonstration and and announced while the Paris Air Show was still going on. The airline industry giant explained that it would use this new alloy in almost all its commercial aircraft from its smaller, single-aisle planes to the double-decker A380.

And more importantly, the contract also opens the door for other aircraft manufacturers to explore the new alloy and enter into sales agreements with Alcoa.