VSMPO is unfurling its "wings" of titanium

28.09.2012 — Analysis

The corporation is preparing to aim high in pursuit of the booming aerospace industry. Boeing predicts that in the next two decades, air carriers will double their fleets, purchasing 34,000 new planes. Each year, passenger traffic will grow by 5% and cargo traffic by 5.2%. At the same time, other titanium-hungry industries, such as energy, automotive, medical, etc., will be developing at the same rapid rate. This will present serious challenges for VSMPO-AVISMA Corporation, OJSC, and the columnist for RusBusinessNews looked into how the world-famous company will meet them.

First of all - airplanes

Titanium is truly the "winged" metal. It is created using alloys, because of the high strength-to-weight ratio required of the load-bearing elements in an airplane’s frame and landing gear, which are essential when manufacturing blades, fan components, and low-compression aircraft engines. Therefore, the corporation’s primary business partners have been and remain the aerospace companies that are the recipients of about 60% of VSMPO-AVISMA’s products.

Shrugging off rumors of the next wave of the global economic crisis, these titans of industry are full of ambitious plans. This year Airbus intends to place 570 aircrafts on the market (which is 35 more than last year), and Boeing - between 585 and 600 (an increase of 110 pcs). Over the next three years they will be shipping at least 45% more products.

The first plane in the new A350 series is currently being assembled at the Airbus plant in Toulouse. The company has received over 550 orders for this aircraft, each of which requires about 90 tons of titanium. VSMPO-AVISMA is actively involved in this project. At the Farnborough International Airshow – 2012, the directors of the corporation and Airbus identified areas for further cooperation, discussing in particular the prospects for supplying more highly machined Russian products.

Ural Boeing Manufacturing, the joint venture of VSMPO and Boeing, has a big test ahead. In summer of 2012, the founders of the joint venture extended for an additional three years the contract to furnish titanium parts for the Boeing-787 and Boeing-737. These new models are in high demand in Russia. Aeroflot has ordered more than twenty DreamLiners and Transaero has requested four. Only days ago UBM began production of a new type of airliner component - the lower belt rib.

Chinese aircraft manufacturers are very impressed with metal from Verkhnyaya Salda. A long-term contract with the Chinese company Shanghai Aircraft Manufacturing Co. Ltd. (SAMC) was signed at Farnborough. The Corporation will supply titanium presswork for COMAC C919 aircraft until December of 2021. The possibility of offering semi-finished machining on that presswork is also under discussion. In addition, VSMPO is in the process of mastering the manufacture of custom parts for the Bombardier C-series aircraft for Northern Ireland’s Bombardier Aerospace.

The Verkhnyaya Salda firm also plays a significant role in the development of Russian aircraft manufacturing. It fully satisfies the titanium needs of United Aircraft Corporation and United Engine Corporation, which produce both military (the Su-27, Su-30, Su-34, Su-35, and MiG-29) and civilian aircraft (the Sukhoi SuperJet 100, Tu-204, Tu-214, and An-148).

From nuclear power plants to automotive wheels

The energy industry is the second-largest consumer of commercial titanium mill products, which are particularly in demand for the heat-exchange systems of stationary and mobile nuclear power plants that use seawater.

Of course, the accident at the Fukushima nuclear power station reactor dealt a heavy blow to the industry. After that incident, many nations reexamined their non-military use of nuclear energy. In particular, Germany and Switzerland shut down a number of significant projects. But China, India, and Russia refused to panic. By 2030, as many as 500 nuclear facilities will be constructed in those three countries, and Rosatom plans to build 28 of those in Russia.

The further development of the mining industry is inconceivable today without titanium. It is the ideal material for offshore drilling platforms, riser pipes, heat exchangers, and pipeline and fire-fighting systems.

VSMPO-AVISMA took an active role in the construction of the Prirazlomnaya, an offshore, ice-resistant, stationary oil platform in the Pechora Sea. The corporation produced the plant’s filter casings for water purification as well as the components of the pipelines for the seawater, ballast-water, and formation-water systems.

As the Yamal Peninsula and Shtokman field are developed, this "winged" metal will be used extensively in the construction of liquefied natural gas plants, each of which will require up to 500 tons of titanium mill products to build. Up to 20 tons of the metal will be needed to assemble tankers to carry the LNG, and an entire flotilla of those is planned.

Growth in the medical industry is very promising for titanium manufacturing. Due to its high resistance to corrosion, non-toxicity, and biocompatibility with human tissue, titanium is used to make spinal implants, endoprostheses of joints, components to treat fractures, and medical equipment.

VSMPO-AVISMA held 18% of the market for medical titanium in 2011. There are plans to increase that share to 25% by 2015. But the corporation intends to increase not only the volume, but also the quality of its products. This summer, foreign auditors certified that the firm’s current management system meets the ISO 13485:2003 standard for quality. This standard lists the requirements for semi-finished products made of titanium and titanium alloy that are to be used for medical purposes.

VSMPO is one of the key players in the automotive market, supplying forged aluminum wheels with increased strength. Due to the unique forging technique, they have an improved structure and superior mechanical properties.

Samples of the product were shown this summer at the international Interauto exhibition. The corporation’s slogan for the exhibition was “High quality and reliability - nothing could be simpler." And the experts back this claim in full. VSMPO’s forged aluminum wheels are 40-50% lighter than the steel ones; they exceed the GOST standards for strength by 1.5-2 times and the standards for malleability by 2 times. They also last far longer under any weather or road conditions.

Some Japanese business consortiums are ready to use Verkhnyaya Salda titanium to produce the exhaust systems for Kawasaki and Yamaha motorcycles. The initial negotiations took place at the Automotive Engineering Exposition - 2012.

A year of plenty

The favorable market is providing a boost to manufacturing and financial figures of VSMPO-AVISMA Corporation, OJSC. Between April and June of 2012, the quantity of products shipped (7,122 tons) exceeded the second quarter of last year by 32%. And there’s room to expand - the equipment is only operating at 70-90% capacity, so production could still be increased.

To achieve this goal, a program to renovate and develop the production facilities is underway. In particular, in 2011 VSMPO began operating a forge and press complex, consisting of a 6,000-ton press, two 25-ton positioners, and ten furnaces. This has greatly increased the company’s capacity to produce billets, forged slabs, and particularly large forgings.

In August of this year, the decision was made to build a new site for the production of rolled rings. There are plans to invest more than 2.5 billion rubles to bring that project to fruition. And by 2016, the machining area with its new equipment will be relocated to the site currently occupied by one of VSMPO's subsidiaries - Aluminum Profile.

Another major new development at AVISMA is the corporation’s new branch in Bereznyaki (The Perm Territory). A solid-waste landfill will open there, as well as a complex that will begin producing titanium sponge. A technical upgrade is scheduled for the third process train in building 1, shop no. 35 and for the department of magnesium-chloride electrolysis at experimental facility no. 3, shop no. 31.

A joint venture now being established in Vietnam to process titanium-bearing minerals will help satisfy VSMPO-AVISMA’s hunger for raw materials.

As Mikhail Voevodin, the corporation’s CEO, notes, “An investment program is a living thing. The modernization of our fixed assets will be an ongoing process.”

The investment efforts will bring tangible financial results. VSMPO-AVISMA’s updated equipment has helped improve its labor productivity, which amounted to 729 thousand rubles per person in the first half of 2011, but increased to 949 thousand rubles between January and June of this year. This was due to sales revenue (+33.6%) that increased at a faster pace than hiring (+2.5%).

The company made 18.83 billion rubles between January and June, which is 33.6% more than during the same period last year. Exports accounted for 53.7% of that revenue. Gross profits increased significantly - up to 7 billion 6 million rubles (+52.9%). Profits from sales doubled, totaling 4.566 billion rubles. Net profits rose to 2.901 billion rubles (+4.4%).

Investors are anticipating further growth in the corporation’s financial numbers and are actively buying up shares. Last year alone, VSMPO-AVISMA’s stock rose 20.3%, and analysts claim this price is still far from the "ceiling."