Airbus wins reprieve from Canadian sanctions on Russian titanium (updated)

Norsk Titanium AS

23/04/2024 20:44

By Allison Lampert, David Ljunggren and Tim Hepher
       MONTREAL/OTTAWA, April 23 (Reuters) - Canada has granted
Airbus a waiver to allow it to use Russian titanium in its
manufacturing after becoming the first Western government to ban
supplies of the strategic metal in the latest package of
measures triggered by the war in Ukraine.
    The move gives Airbus flexibility in its Canadian plants and
is expected to allay concerns that its core operations could be
hit by effectively banning the import to Canada of
European-built long-range jets that rely most heavily on
titanium.
    Russian state-backed VSMPO-AVISMA has for years been the
industry's largest titanium supplier. 
    "Airbus is aware of the Canadian government imposing
sanctions on VSMPO and has obtained the necessary authorisation
to secure Airbus operations in compliance with the applicable
sanctions," Airbus Canada said in response to a Reuters query.
    It did not elaborate on the approvals or say how long they
would remain in effect. The Canadian government did not respond
to requests for comment.
    Imports of titanium from the aerospace industry's largest
historical supplier were left off the Western sanctions list
after Russia invaded Ukraine, with Airbus arguing that banning
imports would backfire economically while barely hurting Russia.
    But Canada broke ranks with other aerospace nations in
February, when it included VSMPO-AVISMA in a list of entities
banned for alleged ties to Russia's military-industrial complex.
    Experts say titanium is mainly used in large lightweight
airliners like the Airbus A350 or Boeing 787 rather than the
smaller Airbus A220, which is assembled partly in Canada.
    But the restrictions have raised alarm bells among suppliers
because they could prevent a foreign-built jet containing
Russian titanium being imported to Canada barring an exemption.
    Industry sources said Airbus had sought a permit from the
Canadian government allowing it to tackle such risks.
    Earlier on Tuesday, the impact of the little-noticed rule
change spread to the United States where supplier RTX  RTX.N 
announced a $175 million charge linked to the cost of replacing
"U.S.- and German-based Russian-owned entities" from which it
had been sourcing titanium for use in its Canadian operations.
    
    SIGNIFICANT RISK
    Ottawa's stance is expected to raise the stakes in a debate
over potential further sanctions targeting Russia's economy.
Ukrainian President Volodymyr Zelenskiy has repeatedly called on
Western governments to impose stronger economic sanctions.
    Canada is home to a large and politically active Ukrainian
diaspora and the government of Prime Minister Justin Trudeau has
taken a notably hard line on Russia since the start of the
conflict in 2022.    
    Airbus says titanium accounts for a small part of Russia's
exports but that cutting off supplies abruptly would "massively"
damage Western aerospace. The debate intensified after March
guidance on Canada's sanctions raised concern about the impact.
    "Our own sanctions shouldn't cause so much harm that we end
up damaging ourselves significantly," a source directly familiar
with Canada's policy told Reuters.
    William Pellerin, a trade lawyer with McMillan in Canada,
said the guidance created a "significant risk" for a Canadian
carrier buying a foreign-built jet containing Russian titanium. 
    Airbus has pledged to accelerate plans to diversify
supplies. Norway's Norsk Titanium  NTI.OL  said on Tuesday it
had finalised a new agreement to supply the planemaker.
    Boeing said after the Ukraine invasion it had suspended
purchases of titanium from Russia, though it has not said to
what extent the metal is still used in its supply chain.
    A spokesperson said on Tuesday it buys titanium mainly in
the U.S. and has substantial inventory due in part to an
initiative several years ago to diversify sources.

 (Additional reporting by Andrew Gray in Brussels and Daphne
Psaledakis in Washington;
Editing by Peter Henderson)
 ((tim.hepher@thomsonreuters.com; +33 1 49 49 54 52; Reuters
Messaging: tim.hepher.thomsonreuters@reuters.net))