Alcoa Outline Plan to Overcome Economic Downturn

Alcoa (NYSE:AA) today detailed a series of specific actions to conserve cash, reduce costs and strengthen the Company’s competitiveness during the current economic downturn. Building on the Company’s commitment from October, these actions address additional production curtailments, cost and procurement efficiencies, portfolio streamlining and reduction of capital expenditures and other liquidity enhancements.

“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn, and flexibility and foresight to be prepared for future uncertainties in our markets,” said Klaus Kleinfeld, President and CEO of Alcoa Inc. “We are taking a wide-ranging set of aggressive, but prudent, measures to ensure that Alcoa maintains its competitive lead in today’s challenging markets while also emerging even stronger when the economy recovers.”

Production Curtailments

Further smelting reductions of more than 135,000 metric tons per year (mtpy) will be implemented resulting in reduction of total primary aluminum output by more than 750,000 mtpy, or 18 percent of annualized output. Alumina production will also be reduced accordingly across the global refining system to a total of 1.5 million mtpy in response to market conditions. Curtailments will be fully implemented by the end of the first quarter 2009.

Cost and Procurement Efficiencies

Targeted reductions, curtailments and plant closures and consolidations will reduce headcount by more than 13,500 employees or 13 percent of the Company’s worldwide workforce by the end of 2009. An additional 1,700 contractor positions also will be eliminated. The Company has also instituted a global salary and hiring freeze.

Accelerated procurement actions to address major input costs such as energy, coke, caustic soda, and aluminum fluoride will provide significant short term cash benefits. Initiatives to secure raw materials from alternate suppliers globally are providing cost advantages for several key inputs. These actions are expected to yield savings of greater than 20 percent in each of the materials. Lower market oil and gas prices also are having a positive impact.

Alcoa continued to make progress on its re-powering strategy and has finalized and signed agreements to supply power through 2040 to three smelters in Quebec that will benefit approximately 25% of the Company’s smelting production. Nearly 80% of the Company’s capacity is now covered by re-powering agreements and self generation through 2025 and the Company is aggressively pursuing other efforts across its portfolio.

Portfolio Streamlining

As previously announced, Alcoa and ORKLA ASA (Orkla) have agreed to exchange their stakes in a Norwegian smelting partnership and a Swedish extrusion joint venture in order to focus on their respective areas of expertise and best practices. Alcoa will receive Orkla’s 50 percent stake in Elkem Aluminum and Orkla will receive Alcoa’s 45 percent stake in the SAPA extrusion profiles business.

Elkem Aluminum, which will be 100 percent owned by Alcoa following the transaction, includes aluminum smelters in Lista and Mosjoen, Norway with a combined output of 282,000 metric tons per year (mtpy). Included in the transaction is Elkem’s stake in a newly opened anode plant in Mosjoen in which Alcoa already holds an approximate 82 percent stake.

Alcoa also intends to divest four non-core downstream businesses: Electrical and Electronic Systems; Global Foil; Cast Auto Wheels; and Transportation Products Europe. The businesses to be sold had 2008 combined revenues of $1.8 billion and an estimated after-tax operating loss of approximately $105 million. The businesses employ a combined 22,600 people at 38 locations. Expected net proceeds for the divestitures are estimated to be approximately $100 million.

Capital Expenditures and Liquidity

Building on the previously announced initiative to conserve cash and suspend the Company’s share repurchase program, the Company is stopping all non-critical capital investment. Capital expenditures in 2009 are projected to be down to $1.8 billion, a 50 percent decrease from 2008, and will be $1.5 billion after partner contributions. Capital spending includes approximately $750 million for the completion of key Brazilian growth projects. The Sao Luis refinery expansion and the greenfield Juruti bauxite mine are scheduled to be finished in the first half of 2009.

Impact

Total charges for the 4th quarter 2008 due to restructuring, impairment and other special charges are expected to be between $900 and $950 million after tax, or $1.13 to $1.19 per share, of which approximately 80 percent is non-cash. The restructuring and divestiture program is expected to save approximately $450 millionbefore taxes on an annualized basis.

“Because we recently completed an extensive competitive analysis, including a strategic review of each business, we have been able to quickly identify and implement effective responses that strengthen our market competitiveness and financial staying power in the economic downturn. We will continue to monitor the dynamic market situation to ensure that we adjust capacity to meet any future changes in demand and seize new opportunities that emerge. These are extraordinary times requiring extraordinary actions,” said Mr. Kleinfeld.

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