Boeing firms up deal with Russia’s VSMPO By Stephanie Kirchgaessner in Washington, Arkady Ostrovsky in Moscow and Doug Cameron in Chicago
Published: August 11 2006 21:22 | Last updated: August 11 2006 21:22
Boeing on Friday firmed up its joint venture with a controversial Russian supplier of titanium in a move that calms fears that recent sanctions imposed against Russia by the US would spur a backlash against the aerospace company and other exporters.
The completion of the deal with VSMPO-Avisma, first revealed in the FT, could also help Boeing win an order for up to 30 of its new 787 aircraft from Aeroflot, the Russian flag carrier, amid intense competition for the deal from rival Airbus.
Boeing has a 10-year relationship with VSMPO, which supplies about 40 per cent of its titanium. Any trade dispute with Russia could have damaged its plans for the 787, which has more than 300 orders but uses five times as much titanium – prized for its light weight and strength – as existing aircraft of the same size.
“This is a materially positive event as it reduces the risk that a shortfall in access to titanium could undermine the ramp-up in 787 production,” said Ronald Epstein, analyst at Merrill Lynch, in a research note.
The announcement comes a week after the US State Department announced sanctions against two Russian companies, including one set to take over VSMPO, which also supplies Airbus and is the world’s largest producer of titanium by volume.
The 50-50 joint venture will see VSMPO manufacture parts for the 787, which is due to be delivered to its first customer in 2008. The Russian company will provide so-called “rough forging” of the material, with Boeing completing the parts in its US facilities.
However, Russian companies – which have long experience in aerospace manufacturing and design – are keen to move further up the value chain in the sector. Boeing also has a joint venture to develop a new regional jet in partnership with Sukhoi, an aircraft manufacturer also caught up in the sanctions issue.
The US decided to impose the sanctions against the state-controlled weapons exporter Rosoboronexport and Sukhoi following the sale of an anti-aircraft system to Iran by Russia earlier this year, according to a person familiar with the situation. Rosoboronexport, which is set to take over VSMPO, is chaired by Sergei Chemezov, an ex-KGB officer and friend of Mr Putin.
“Boeing will continue to work closely with all government agencies to ensure our joint venture and all other activities in Russia remain compliant with all US and international obligations, including the sanctions recently announced by the US State Department,” said Mike Cave, Boeing’s vice-president of commercial aircraft programmes, following the signing ceremony on Friday.
Boeing said it was planning to spend up to $18bn by 2030 on acquiring Russian titanium products and $5bn on Russia’s engineering services.
The company is pursuing an order for up to 30 new aircraft from Aeroflot, which is looking to replace its existing Boeing 767s. It also operates Airbus aircraft, and has expressed interest in the redesigned A350 offered by the European group following customer criticism of the previous design. The new A350 will not be available until 2012.
Both manufacturers have also been campaigning to persuade the Russian government to relax a 20 per cent duty on aircraft imports as well as an 18 per cent sales tax on aviation products.
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