Mikhail Voevodin, VSMPO-AVISMA - ВСМПО-АВИСМА
Release Date: 2010-10-12
Mikhail Voevodin, General Director of VSMPO-AVISMA, the Russian titanium giant, has been interviewed by Russianavia.net to discuss the latest developments of the company, new joint ventures, VSMPO-AVISMA's leadership in the Special Economic Zone project in Ekaterinburg region, and the general market prospects for the coming years that promise to continue the recent success stories of the Russian aviation.For VSMPO-Avisma, 2009 and 2010 were very important years, marked by two significant events: a joint venture with Boeing and a new long-term delivery contract with EADS. Which of these events is most important for you?
Both of these events are very important for us; they show that there is progress and strength in our relations with the main partners. Traditionally, our main priority is to satisfy customers. We understand that customers are increasingly interested in having a shorter supplier chain and are mostly interested in the price of the final part. This is a new global trend. VSMPO-Avisma is more interested in joint ventures as an opportunity to produce a more developed commercial product; this is proven by the experience of our joint venture with Boeing. For customers who are not interested in doing joint ventures, VSMPO-Avisma has in-house production facilities.
VSMPO-Avisma welcomes any kind of new joint ventures. Our current focus is establishing a special economic zone (SEZ) in Verkhnyaya Salda (the so-called "Titanium Valley" – a project by the federal authorities and VSMPO-Avisma to manufacture titanium and aluminum alloy products for the domestic and foreign machine-building industry in Verkhnyaya Salda, a town in Sverdlovsk region – Editor’s Notes). Hopefully, this SEZ will help to implement a few proposals form our partners and customers who are willing to establish joint ventures there. Strategically, we have already received a preliminary approval from the regional government.
What kind of companies would be attracted by the SEZ in Verkhnaya Salda?
Firstly, we would like to invite all our customers to go there. Secondly, VSMPO has inherited a lot of non-core assets and costs (such as sport facilities etc.) so it would be quite logical to sell to companies willing to invest money into the SEZ. Another kind of investors is the so-called small and middle enterprises like some of our suppliers, who would like to move their production facilities closer to Salda.
What would be SEZ’s advantages to attract them?
There are many, such as a lower rate of profit tax and property tax, possible subsidies by the government for infrastructure. It is also very important that the equipment in the SEZ is free of custom duties and VAT.
Obviously, the West remains a big area for aviation and manufacturing. However, everybody sees a shift towards China and India. Does VSMPO-Avisma see more opportunities in China? If so, is there any fear that China might become your competitor in future?
China indeed has all the chances to become one of our strongest competitors in 5-10 years from now, with the same quality in more value-added products. This is why we are expanding our product line in order to secure our market share. We value our position on titanium market as one of the best global manufacturers of titanium alloys, and as the developer and supplier of new titanium alloys, for example for Boeing 787 Dreamliner. Besides, VSMPO-Avisma develops other kinds of alloys for Airbus and other customers. That is why our R&D department, which employs about 1,000 people, plays a key role here.
It is core for VSMPO’s business to preserve this advantage see how emerging markets are rapidly developing. This explains why VSMPO’s investment program is kick-starting again with a surprising swing…
Originally, the investment program started in 2006 from the idea of increasing VSMPO’s production capacity by 60% and changing the product line from easy products to more developed products in order to double the turnover and EBITDA in 2012. Investment money earmarked for 2006-2012 totaled one billion USD. Despite the crisis that started in 2008, we did not suspend the investment program but only postponed its final date to 2013; otherwise we would have not been ready for the ramp up of our customers. Having made about 150 million USD of investments in 2009, we plan to invest about 200 million USD in 2010.
Which product line is VSMPO-Avisma going to choose for the future?
Earlier, in 2006-2007, ingots and slabs account for a large share (about 10,000 t per year) of our sales. Sales of forgings were about 2,000 t per year. As for our future plans, we plan to sell about 10,000 t of forgings and only CP titanium slabs in 2013. Increasing capacity by 60% should mean pushing the turnover and EBITDA to 200%.
The current market conditions seem to be quite favorable…
Indeed, the situation is definitely better now than a year ago. All titanium products are waiting for Boeing 787 Dreamliner – the most titanium-consuming aircraft in history - to finalize the testing flights in 2010 and go to mass production.
On the other hand, CP titanium market is waking up. The price on CP market went down dramatically in 2008 and is not to reach the same price level before 5 years’ time. For me, in 2013 the CP market will account for 20% of the turnover, so it is not crucial. Besides, in 2 or 3 years’ time the Chinese producers will become stronger and offer more quality products for a lower price.
Most of your strategic acquisitions have covered so far mostly Russia and Ukraine … Are any changes planned towards diversifying the geographic location?
As for VSMPO’s Russian acquisitions, the latest one was Uralmet, a major super-alloy producer. It was a correct decision because the major issue for super-alloys is quality. We would like to improve the already high quality Uralmet products and use super-alloys for rotor blades and for export. This is because VSMPO’s quality team can help facilitate getting the certification for Uralmet that would otherwise be difficult. Hopefully, in the future this acquisition will enable us to arrange cost-cutting production in super-alloys.
Are there any opportunities on the Chinese market?
You might know that China is working on a quite big aircraft similar to Boeing 767, and they obviously need titanium, so we’re negotiating delivery contacts with them. There are also many businesses in China that will be growing in the next years. In this regard, we have opened a dealer center in China.
VSMPO is now partly owned by Russian Technologies (RT). Why it was important to get into Russian Technologies and what has it brought?
In 2006, Rosoboronexport, now part of RT, acquired shares of VSMPO as a strategic enterprise because it is the only Russian titanium producer that is crucial for defense and military equipment. I have to confess that the four years that VSMPO has been part of RT have been quite beneficial for us.
In the oil and gas industry, titanium is taking increasing importance. Is this sector also going to increase in future?
The opportunities are open here. VSMPO supplies tubes and other products to the oil and gas industry, especially for sea platforms that require about 200 t of titanium each for firefighting systems, desalination systems, basement tubes… Besides, VSMPO is also a magnesium and aluminum producer with an aluminum facility that produces products, profiles and flat products originally created for aviation such as wings and fuselage. Aluminum accounts for 10-15% of our capacity. Unfortunately, this business segment is not utilized as much now, and we are waiting for the Russian aviation program to tap into this capacity. We already have some very good orders for aluminum products from foreign customers and we’re thinking about supplying aluminum profiles for high-speed trains and ships in future.
Fortunately, we have some feasible market prospects and an extensive plan of development for the next two years.
What would be your message to the readers of Russianavia.net?
Buy titanium!
| Company: | VSMPO-AVISMA - ВСМПО-АВИСМА |
| Country: | Russian Federation |