(Corrects MAY 23 story to specify VSMPO is 25 percent owned by
Rostec, paragraph 2)
By Natalia Shurmina
YEKATERINBURG May 23 VSMPO-Avisma,
the world's largest titanium producer, warned Airbus on
Friday it would be forced to pay penalties if the European
planemaker terminated a $4 billion contract with its Russian
VSMPO is 25 percent owned by Russian state defence
conglomerate Rostec, whose CEO Sergei Chemezov was made the
subject of Western sanctions in late April for Russia's role in
the Ukraine crisis.
"Contracts remain valid and cannot be cancelled for no
reason. Otherwise, penalties come into force," VSMPO CEO and
co-owner Mikhail Voevodin said in an interview with Reuters.
"A contract until 2020 was signed with us. And it is
difficult to assume that the largest European aircraft maker
would neglect the terms of the existing partnership."
He declined to comment on the size of the potential
Airbus Chief Operating Officer Guenther Butschek said this
month there were no short-term impacts from the crisis in
Ukraine but that the firm was looking to safeguard supplies of
titanium, which is used in its A350 jet.
The West has threatened to tighten sanctions should Russia
dramatically ramp up aggression against Ukraine by recognising
the separatist referendums that took place in eastern Ukraine
earlier this month.
VSMPO and Airbus/EADS struck the $4 billion deal five years
ago under which the titanium giant would supply the planemaker
with rolled titanium alloys until 2020.
"The advantage of a long-term contract is stable conditions.
We always strictly fulfil the terms of the contract, so do our
partners ... Politics is politics and business is business: all
of our contracts are mutually beneficial," said Voevodin.
VSMPO meets 60 percent of titanium products demand at Airbus
and 40 percent of demand at its U.S. rival Boeing.
Last year, VSMPO, which exports 70 percent of its output,
raised production to 28,855 tonnes from 26,242 tonnes in 2012.
Voevodin said that should Airbus quit the contract, it would
take the Russian company two to three years to find new buyers
for its titanium, which is also used in the energy, chemical
engineering, and medicine industries.
"In the end, the consumer will definitely find our products
that few in the world can make today. But it's impossible to
find an adequate replacement for VSMPO products in less than
three-five years," said Voevodin.
Besides VSMPO, America's Timet, Alleghany Technologies
, Japan's Toho Titanium, and China's Zunyi
Titanium and Pangang and Jinchuan groups
are large titanium suppliers.
Gazprombank analyst Maxim Khudalov said Airbus was unlikely
to find alternative titanium suppliers anytime soon.
"Despite the increase of titanium production in China,
domestic demand is also high there", he said.
(Additional reporting by Sveta Burmistrova, Writing by
Alexander Krivov and Andrey Kuzmin; Editing by Mark Potter)