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In our Friday August 11, 2006 article “US Ban on Russian Defense Firms Raises the Stakes,” DID discussed a number of potential developments that might be affected. Boeing featured prominently, via a potential $3 billion deal with Aeroflot for 787s, and a potential titanium deal with top titanium firm VSMPO-Avisma (soon to be Rosoboronexport) for a 50/50 Boeing joint venture. That endeavor could produce up to $4 billion in parts orders from Boeing over the next 10 years; plus up to $18 billion in contracts for Russian titanium products, and $5 billion on Russian engineering services, by 2030.

In August 2006, Boeing announced that joint venture deal. In June 2007, agreements were signed that began to formalize these promises – including side-deals re: 787s for Aeroflot, and Boeing’s ongoing involvement in Sukhoi’s regional jet program. Now, in December 2007, large contracts are beginning to flow…

Hammering ‘em out

According to Boeing’s August 2006 release, VSMPO-AVISMA (Rosoboronexport) will perform rough machining of titanium forgings in Verkhnaya Salda, located near Sverdlovsk. Final machining and processing of the forgings will be completed by Boeing’s Portland, OR fabrication facility and other machining subcontractors, while titanium machine-turnings, or ‘chips,’ from the machining process will be recycled back to VSMPO-AVISMA to create an efficient, closed-loop supply.

VSMPO already supplies 40% of the titanium used in Boeing’s civil aircraft, and the firm has been a major Boeing supplier since 1997. Reports in Russian media outlets vary, noting $1.25 – $2.5 billion in immediate commitments. Either way, this would be larger than the $1 billion supply deal the firm signed with EADS Airbus in May.

Pravda immediately ran an article entitled “Boeing interested only in cheap Russian titanium, not in the aviation industry,” . Given VSMPO’s recent ‘acquisition’ by state-run Rosoboronexport, one is tempted to advise them to lie back and think of the flag (did anyone else have that article run under a “Pravda: Sex and Relationship” banner ad?). Pravda adds that:

“Furthermore, a lot of observers are concerned about Boeing’s intention to cooperation with the Russian Central Aerohydrodynamic Institute (CAHI) and the Russian Institute of Aviation Materials (RIAM). Unlike at RIAM, the Aerohydrodynamic Institute currently experiences a lot of problems – low wages, first and foremost. The problems create perfect conditions for foreign companies to win Russian specialists. In spite of its troubles, the institute has managed to keep talented scientists and engineers.”

They add that Boeing may also be angling for a possible break on import aircraft duties. Yury Koptev, the Director of Russia’s Federal Space Agency, has said that ”...reducing the duties for the import of foreign planes to Russia would be settled in connection with Boeing’s intention to participate in the development of the Russian aviation industry.”

Boeing’s intent to invest in engineering talent could well constitute fulfillment of that criterion, despite Pravda’s poaching concerns. It remains a bit soon to speculate, however, especially with potential US trade spats on the horizon that could toss Russia’s relationship with Boeing into far stormier seas.

UPDATES:

Superjet-100
(click to view larger)

Dec 27/07: VSMPO-AVISMA Corporation signs a $1+ billion contract with Boeing to supply titanium mill products for the 787 Dreamliner from 2011-2015.

Earlier in 2007, VSMPO-AVISMA and Boeing set up Ural Boeing Manufacturing (UBM), a 50/50 equity joint venture in Verkhnya Salda, to produce titanium parts for the Boeing 787 Dreamliner passenger jet. High precision processing US-made production equipment has been already purchased by the partners, and preparation for its commissioning is underway as of December 2007. The Russians expect that the range of products produced by UBM will expand. Rosoboronexport release.

June 9/07: Aeroflot selects the Boeing 787 over Airbus’ A350. Boeing “looks forward to working with Aeroflot to finalize the order.” Boeing release.

June 9/07: Boeing’s role as an adviser to Sukhoi et. al. in the Russian regional jet program (Sukhoi’s 78-95 passenger Superjet 100) previously covered areas of program management, engineering, marketing, product development, certification, supplier management, and customer support. Now Boeing announces an agreement under which it will “explore opportunities” to add flight and maintenance crew training, spare parts management and supply, and guidance on producing flight and maintenance manuals that meet international standards. Boeing release.

Analysts note that in order to be successful beyond Russia, Sukhoi/UAC will need to build or partner for top-tier spare parts, training, supply chain, and customer service capabilities with international reach.

June 9/07: Koptev’s comments appear to find fulfillment, while Boeing negotiates with Aeroflot re: pricing, import duties, et. al. Boeing and Russia’s recently-merged United Aircraft Corporation (UAC) sign an agreement “to identify opportunities to expand collaboration on commercial aviation activities,” via a joint working group. They’ll investigate opportunities that include:

• R&D in commercial-airplanes structures, including finished titanium parts and structures.
• Opportunities to reduce cost and weight in airplanes
• Opportunities to make UAC’s Komsomolsk-on-Amur Aircraft Production Associations (KnAAPO) a qualified supplier of finished titanium parts and components
• The potential for a longer-term strategic agreement among the Boeing Design Center in Moscow, the UAC, and Russian private engineering services companies
• Sharing of airplane market trends information in Russia, the CIS and worldwide.

The agreement also enhances Boeing’s role on the Superjet Program (see above), and Boeing currently works with leading Russian aerospace companies on two ambitious programs – the International Space Station, and Sea Launch, a heavy-lift commercial satellite-launch service. Boeing release.

June 2/07: Sukhoi Civil Aircraft plans IPO by 2010.

Additional Readings

• US DoD Advanced Materials and Processes Technology Information Analysis Center (Vol. 6, #2) – Lowering the Cost of Titanium [within this PDF file].