Typically, conventional casting technologies are employed to manufacture aluminium alloys from scrap, but during recycling iron accumulates and increases in content. Increased iron content in such alloys reduces their mechanical properties. Because powder metallurgy is able to prepare materials with a very fine microstructure, we investigated its use for the preparation of aluminium alloys with a high iron content and the required mechanical properties. We prepared an Al-Fe17 (wt. %) binary alloy using combination of mechanical working (MW), high-energy ball milling (HEBM) and spark plasma sintering (SPS). The thus-prepared samples were analyzed (XRD, XRF, SEM-EDS, compression stress-strain test) and compared to the commercially-available alloy Al-Si12-Cu1-Mg1-Ni1, which is thermally stable. While the MW followed by SPS sample showed improved plastic deformation, the combination of MW, HEBM and SPS led to the absence of plastic deformation at room temperature. However, the MW+HEBM+SPS had much higher strength (579 MPa) and possessed similar thermal stability as the commercial Al-Si12-Cu1-Mg1-Ni1.