Letter Agreement

Exhibit 10(gg)

Mr. Klaus Kleinfeld

President and Chief Executive Officer

Alcoa Inc.

390 Park Avenue

New York, New York 10022 USA

Dear Klaus,

As President and Chief Executive Officer, you are a key part of the senior executive management team of Alcoa Inc. (the “Company”). The business relationships you have developed both inside and outside of the Company, your knowledge of the Company’s business affairs and your management experience are all of great importance to the Company, and I value your continuing contributions. As I am sure you can also appreciate, it is important to the Company’s future success that you, me and the other members of the senior executive leadership team are able to enhance our ability to increase shareholder value, and if necessary, to ease transitions when it is in the best interest of the Company to do so. Accordingly, it is my pleasure to be able to provide you with this letter agreement (the “Agreement”) which sets forth the terms of an arrangement between you and the Company concerning your continuing and post-employment obligations. This letter agreement supersedes and replaces in its entirety the letter agreement dated February 15, 2008 between you and the Company. For avoidance of doubt, this letter agreement does not replace or supersede the offer letter between you and the Company dated August 14, 2007 (the “offer letter”). It is acknowledged that Section 9(a) of the offer letter which provides that the executive severance agreement would terminate upon your appointment as Chief Executive Officer was waived by the Compensation and Benefits Committee of the Board of Directors.

You may terminate your employment with the Company by voluntarily resigning or by retiring. If you wish to resign or retire, you will provide the Company with at least three months’ advance written notice (the “Notice,” which shall contain your selected date of termination, which must be at least three months after the date the Notice is received by the Company (such date of receipt, the “Notice Date”)), after which the following conditions shall apply:

Your active service with the Company will be terminated on the date specified in the Notice (or such later date as you and the Company mutually agree), or such earlier date as the Company may determine in its sole discretion (the “Voluntary Termination Date”). During the period from the Notice Date through the Voluntary Termination Date, (i) the Company may, in its sole discretion, assign you such duties as it sees fit (but commensurate with your position) and (ii) you agree to continue to provide at least 20% of the average level of services you provided to the Company during the preceding 36-month period, such that your “separation from service” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“409A”), occurs on the Voluntary Termination Date.

If your employment with the Company terminates pursuant to this Section I, you will be paid the following amounts (which you acknowledge would not be due you in the absence of this Agreement) on the first business day which is at least six months after the Voluntary Termination Date, provided that on or after the Voluntary Termination Date, and at least 10 days prior to the payment date, you execute and return to the Company the release agreement attached as Exhibit A (the “Release Agreement”) and (ii) any period within which you may revoke the Release Agreement pursuant to the terms thereof has expired without you having revoked the Release Agreement:

(i) $50,000 in consideration of execution and delivery of the Release Agreement as provided above; and

(ii) If the Voluntary Termination Date occurs before the date specified in your Notice and less than three months following the Notice Date (e.g., if the Company elects a Voluntary Termination Date earlier than the date specified in the Notice), a lump sum amount equal to your monthly base salary as of the Voluntary Termination Date for the time between the Voluntary Termination Date and three months following the Notice Date; or

(iii) If you and the Company mutually agree to extend your service to a later date than the date stated in your Notice, upon your Voluntary Termination Date, you will receive: a lump sum amount equal to your monthly base salary for each month you provided service beyond the date stated in your Notice or for such period of time as you and the Company may mutually agree, not to exceed 24 months (referred to as the “additional period of time”) ; a lump sum amount as provided under Section II B (iii) and (iv) below except that the amount will be calculated for the “additional period of time”; and continued active medical benefits for the “additional period of time” as described in Section II B below.

If your employment with the Company terminates pursuant to this Section I, upon and following the Voluntary Termination Date, your other compensation and benefits continue to be governed by the terms of the plans in which you participate; provided however, that payments and benefits under this Section I are in lieu of any other involuntary separation benefits or severance payments which you may be eligible to receive from the Company; and if you receive severance pay and benefits under the Company’s Change in Control Severance Plan, no payments will be made, or benefits provided, under this Agreement.

The Company may terminate your employment at any time, with or without Cause, with the results described below. In such case, the Company shall determine the effective date of your termination (the “Involuntary Termination Date”).

A. Involuntary Termination With Cause . If the Company terminates your employment due to Cause, you will receive no severance payment under this Agreement or any other severance plan, policy or arrangement of the Company or any of its affiliates. For purposes of this Agreement, “Cause” means: (i) any refusal by you to follow the lawful directives of the Board of Directors, which are consistent with the scope and nature of your duties and responsibilities; (ii) your conviction of, or plea of guilty or nolo contendere to, a felony or of any crime involving moral turpitude, fraud or embezzlement; (iii) any gross negligence or willful

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misconduct in the conduct of your duties; (iv) any material breach of any one or more of the restrictive covenants provided in this Agreement; or (v) any violation of any statutory or common law duty of loyalty to the Company or any of its subsidiaries; provided no act or omission shall be “willful” if conducted in good faith and with a reasonable belief that such conduct was in the best interests of the Company.

B. Involuntary Termination Without Cause . If the Company terminates your employment for reasons other than Cause, and you fulfill your obligations as set forth in this Agreement, you shall be paid the following amounts (which you acknowledge would not be due you in the absence of this Agreement) on the first business day which is at least six months after the Involuntary Termination Date, provided that, on or after the Involuntary Termination Date, and at least 10 days prior to the payment date, (i) you execute and return to the Company the Release Agreement and (ii) any period within which you may revoke the Release Agreement pursuant to the terms thereof has expired without you having revoked the Release Agreement:

(i) a lump sum amount equivalent to two times your annual base salary and annual target bonus as of the Involuntary Termination Date;

(ii) $50,000 in consideration of execution and delivery of the Release Agreement as provided above;

(iii) a lump sum amount, in cash, equal to two times the Employer Retirement Income Contributions under the Alcoa Savings Plan contribution percent in effect on the Involuntary Termination Date multiplied by the portion of your annual base salary as of your Involuntary Termination Date which is eligible for contribution to the Alcoa Savings Plan; and

(iv) a lump sum amount, in cash, equal to the excess of (I) the actuarial equivalent of the aggregate retirement pension under the SERP Benefit provided in your offer letter as if you had been credited with an additional 24 months of service following the Involuntary Termination Date; over (II) the actuarial equivalent of the aggregate retirement pension which you had accrued under the provisions of the SERP Benefit provided in your offer letter as of the Involuntary Termination Date.

In addition, for a period of two years after the Involuntary Termination Date the Company shall arrange to provide you, and anyone entitled to claim through you, health (including medical, behavioral, prescription drug, dental and vision) benefits substantially similar to those provided to active employees, at no greater after tax cost to you than the after tax cost to you immediately prior to the Involuntary Termination Date. If the company contribution to these benefits becomes taxable to you, you will be grossed up on these contributions (with any gross up paid to you promptly but in no event later than the end of your taxable year following the taxable year in which you or the Company remits the related taxes). In order to comply with 409A, the following shall apply to the health care benefits provided pursuant to this paragraph, the costs of which are not fully paid by you (the “Health Benefits”). Any and all reimbursements of eligible expenses made pursuant to the Health Benefits shall be made no later than the end of the calendar year next following the calendar year in which the expenses were incurred. The amount of expenses that are eligible for reimbursement or of in-kind benefits that are provided pursuant to the Health Benefits in any given calendar year shall not affect the expenses that are eligible for reimbursement or benefits to be provided pursuant to the Health Benefits in any other calendar year, except as specifically permitted by Treasury Regulation Section 1.409A-3(i)(iv)(B). Your right to the Health Benefits may not be liquidated or exchanged for any other benefit.

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If your employment with the Company terminates pursuant to this Section II, upon and following the Involuntary Termination Date, your other compensation and benefits continue to be governed by the terms of the plans in which you participate; provided however, that payments and benefits under this Section II are in lieu of any other involuntary separation benefits or severance payments which you may be eligible to receive from the Company; and if you receive severance pay and benefits under the Company’s Change in Control Severance Plan, no payments will be made, or benefits provided, under this Agreement.

Any voluntary termination of your employment will be deemed an involuntary termination of your employment “without Cause” under this Agreement (a “Qualifying Termination”) if such resignation occurs during the thirty day period following the date on which the Chairman of the Board retires and you are not immediately thereafter appointed to succeed him as Chief Executive Officer and Chairman of the Board; provided, the appointment of a non-executive Chairman of the Board at any time will not constitute a basis for a Qualifying Termination if you continue to be the Chief Executive Officer reporting directly to the Board of Directors.

Restrictive Covenants

In light of the unique character of your position with the Company, the business relationships you have developed and will continue to develop while employed by the Company, and your knowledge of the Company’s business affairs including the Confidential Information (as defined below), and with the acknowledgment of the continuing consideration which you will receive from the Company as a member of its senior executive management team, and the personal financial security which is provided under this Agreement, or in the event of a change in control as defined in the Company’s Change in Control Severance Plan, you agree to the following Restrictive Covenants:

Noncompetition : During your employment and for a period of two (2) years thereafter (regardless of whether the termination of your employment is voluntary or involuntary), you will not directly or indirectly provide services, whether as a director, officer,