OREANDA-NEWS. October 06, 2008. At the seventh International Hydroaviation Show “Gelendzhik-2008” that was held, the delegation of the greatest titanium producer in the world, VSMPO-Avisma Corporation, occupied one of the halls among eight chalets of the leading Russian aircraft construction companies, reported the press-centre of VSMPO-AVISMA.

And it is not surprising, if one knows that the body of Be-200 and A-42 amphibian aircrafts, the major “stars” of the show, are made of titanium.

COMING DOWN TO EARTH
PSC VSMPO-Avisma became a regular participant in major international exhibition shows related to military defense long ago. Light and strong titanium is present in all types of modern equipment – aircraft and rocket structures, military vehicle armour and submarine bodies.

The largest aircraft construction corporations of the world purchase titanium produced in the Ural Region. VSMPO-Avisma is the major supplier of ingots and all types of semi-finished products made of titanium alloys to global aircraft industry.

The Company performs successfully enough at the international market increasing the volume and the mix of the delivered goods. However, the development strategy adopted by the Company shall take the titanium producer from the raw material producers group to another industrial category, i.e. engineering.

After all, it is clear that semi-finished products give greater added value than common rolled products. And finished products are even more profitable.

Precisely this course line was chosen by the Company, and one can see the results. Two years ago at Aviation Show in Farnborough (the UK) VSMPO-Avisma demonstrated a rough machined die forging (truck beam) for Boeing-787.

And in July 2008 again at Farnborough Aviation Show this part was already presented as semifinish machined. Components of the same quality for Boeing-737, Boeing 777 and the European giant, Airbus A380, were presented. In the near term the customers will already receive finished components that can be sent at once to the aircraft assembly shop without any additional processing.

This summer in Farnborough PSC VSMPO-Avisma has demonstrated one more recent development, i.e. titanium rolled products not for aviation industry but for Formula-1 race bolides. It should be mentioned that the Ural metallurgists have been working out the automotive issue for a long time.

Many automobilists are familiar with the wheel discs produced by VSMPO-Avisma. They are manufactured from high-strength light aluminium alloy with titanium additions. They are produced by hot precision die forging that ensures high level of strength and plastic properties. These particular techniques are used for processing of aviation materials.

The manufacturing process itself looks as follows. At first the cast stock is worked mechanically in the line of vertical hydraulic presses. The line is composed of four presses with the capacity of 6 000 tons, two presses with the capacity of 20 000 tons and 1 600 tons.

The stock gets successively through these presses being shaped as required. Then the wheel is heat treated and transferred to high-accuracy computer-controlled machines. Turning and milling ensure the set shape and dimensions. Then the wheel geometry inspection is performed. Test specimens are taken from each lot of discs to test mechanical properties for conformance. Each finished disc has unique identification.

The manufacturing accuracy guarantees uniform distribution of weight in relation to the wheel spindle. The strong alloy, which the wheel discs are manufactured from, provides long life and tolerance to impact and vibration. As against the cast discs, the die-forged (forged) discs manufactured by VSMPO-Avisma accelerate the vehicle speed. Besides, the discs manufactured in Russia are significantly cheaper than the foreign-made discs.

DEVELOPMENT STRATEGY
Recently the Board of Directors of VSMPO-Avisma Corporation has decided to change the organizational management structure with regard to introduction of the place of the President directly subordinate to the Board of Directors. Consequently, Vladislav Tetyukhin, who had held an appointment as the Director General of PSC VSMPO-Avisma since 1992, was appointed to the post of the President of the Company. Eugene V. Romanov took the position of the Director General instead of him.

He is a native of the Ural Region and was born on November 20, 1961 in Sverdlovsk in the Ural Region. He graduated from the Ural Polytechnic University, and has the second higher education in financial accounting. He worked as the chief accountant acting as the finance director at the Ural Electromechanical Plant, practiced banking, and has occupied leading positions in RAO Norilsk Nickel since 2000.

The same course for production development and output increase will be held. The Company intends to conquer one third of the global titanium market. During the meeting of the shop heads and department managers of the Company dedicated to summarizing for August 2008 and held on September 3 the newly appointed Director General, Eugene Romanov, stated the following: “Your Company is famous throughout the country, in the whole titanium and aerospace world. The Company’s goals are ambitious. I count on your support in an effort to achieve these goals”.

Currently the Company exports 70% of its products, and sells 30% at the internal market. The major customers of VSMPO-Avisma are the world leading aircraft companies.

In July 2008 the frame contract was signed with the European aircraft group, Airbus, for delivery of titanium to the amount of up to 4 billion dollars. Under the terms of the sighed contract VSMPO-Avisma will deliver titanium to Airbus and other subdivisions of the European aerospace and defense group EADS till 2020. Also, the contract provides for delivery of various titanium products, which will be used for wide-body A350 aircrafts.

The largest purchaser of VSMPO-Avisma products is the aluminium company Alсoa. VSMPO share for Boeing is 40% of titanium deliveries, for Airbus - 80% of titanium deliveries (including their subcontractors). In addition, VSMPO executes the orders for Goodrich, Pratt&Whitney, Rolls-Royce, SNECMA Moteurs, General Electric and their subcontractors.

All Russian aerotechnics producers also purchase the products manufactured by the Ural Corporation.

VSMPO-Avisma Corporation increased its output in 2007. Thus, titanium sponge production increased by 2 thousand tons, or by 6%, last year in relation to 2006. In total, more than 34 thousand tons of titanium sponge of premium quality, which has almost no reproofs given by the users, were produced.

The next step to be taken in 2008 is to increase titanium sponge production by another 2 thousand tons, in order to achieve the production rate of 36 thousand tons per year. In general, the titanium sponge production rate shall achieve 44 thousand tons per year by 2012. And the general level of titanium product manufacturing will equal 46–47 thousand tons per year, which is 1.7 times as much as the production rate in 2007.

The investment program for strategic development for 2007-2012 is being implemented to this effect. About one billion dollars will be invested in production development and new capacities build-up within this period.

At that the preferred direction of investments is expansion of the global presence of the Company, first of all, due to acquisition of titanium and magnesium assets in the Ukraine and Kazakhstan. At the end of 2005 the titanium corporation gained control over the Ukrainian manufacturer of titanium tubes, Nikopol plant, which is currently called as ZAO VSMPO Tube Plant. It is owned jointly with the Ukrainian company called Interpipe.

The plant in Nikopol requires total upgrading for development of manufacture of aircraft tubes for Airbus and Boeing. The company called OOO VSMPO Titan, Ukraine, 84.28% of which is owned by PSC VSMPO-Avisma, was established, in order to control this process. The second owner is another subsidiary of VSMPO, VSMPO Titan Scandinavian AB (former Karl Edblom Titan AB). VSMPO Titan, Ukraine will deal with development and upgrading of the tube plant in Nikopol.

This company will purchase modern equipment from abroad using its own funds and grant it to the plant on lease. It is this that explains the serious amount of the authorized capital of 16 million dollars. It will be used in full for purchasing of new machines. In addition, VSMPO-Avisma owns Titan Dnepr company in Dnepropetrovsk, which deals with wholesale and retail business, and also agency business and services related to business and management issues.

Business experts noted one vulnerable aspect in VSMPO-Avisma performance, which lies in dependency on external suppliers of raw materials. The issue on elimination of this problem has become one of the most important issues for the company management. In autumn 2007 the Company gained share of 20% in the joint venture called Kamsk Mining Company, which will provide deliveries of the required volumes of carnallite, which is a very important component for titanium sponge production.

In March 2008 VSMPO-Avisma acquired its own raw materials for the first time. The administrative authorities of Tambov Region sold Titan Mining Company that is authorized to develop the northern part of the Eastern area of the Central deposit with 1.3 million tons of titanium dioxide. In total the Central deposit resources equal 1.6 billion tons of ore sand that contains 27 million tons of ilmenite, 5.5 million tons of rutile, 4.9 million tons of zirconium and 20 million tons of titanium dioxide.

Meanwhile, the major part of ilmenite concentrate for titanium production is supplied from two Ukrainian deposits – Malyshev and Irshansk deposits. Irshansk mining and processing integrated plant is rented by the Austrian company OstChem Holding. However, recently the company has had problems with the Ukrainian government.

In particular, settlement of the issue on construction of Mezhdurechensk Mining and Processing Complex (MPC) and the issue on renewal of Irshansk MPC lease is slowed down. The lease term expires in September 2009. In case the leasing agreement is not extended, it may be well be that Russian VSMPO-Avisma will get interested in this project.

MARGIN OF SAFETY
Verkhnaya Salda Metallurgical Production Association (VSMPO) is the world largest integrated manufacturer of ingots and all types of semi-finished products from titanium alloys: billets, die forgings, slabs, plates, sheets, bars, tubes. The association produces also unique extruded items from aluminium alloys. VSMPO develops manufacture of semi-finished products – forgings and die forgings – from alloy steels and nickel-based refractory alloys, including superalloys INCONEL 706, INCONEL 718 per Russian, European and American standards.

The factory consists of a range of manufacturing and processing divisions:
The melting shop is the biggest melting shop in the world equipped with unique presses with the capacity of 10 000 ton-force for manufacture of large-sized compacted electrodes with the weight of up to 10 000 kg, base of VAR furnaces, including scull VAR furnaces, that allow manufacture of ingots from titanium and titanium alloys with the diameter of 400 - 1150 mm and weight of up to 18 000 kg. The most modern cold hearth plasma arc furnace in the world is at the commissioning stage. It opens up fresh opportunities for improvement of metal quality, reliability and service life.

The forging press shop has a wide range of forging and die forging hammers, forging presses with the capacity of up to 6000 ton-force, a radial forging machine with the capacity of 800 ton-force, die forging presses, including the press with the capacity of 30 000 ton-force and the biggest press in the world with the capacity of 75 000 ton-force. Both presses were totally upgraded by installation of the computer control system in 2002-2003 and now they are the most modern presses in the world.

The noted capacities, application of advanced methods of design and mathematical simulation, well-developed tool production allow continuous increase in production output.

The sheet rolling shop is equipped with hot, warm, cold rolling mills for plates, coils, sheets, strip, foil, super plastic deformation sheets, and equipment for straightening, heat treatment, dressing, etching, grinding, ultrasonic inspection.

The bar and section rolling shop has a unique reversing radial shear rolling mill, a bar and section rolling mill, radial mills for rolling of light sections. Rolled bars get through the complete processing cycle, including hot straightening, machining and ultrasonic inspection per the most rigid practices.

The tube production shop is equipped with a range of hydraulic presses, a cross screw rolling mill, cold rolling mills, drawing mills, modern tube welding mills and a set of equipment for all types of inspections and tests.

The aluminium alloy manufacturing division provides manufacture of ingots from more than 50 grades of aluminium wrought alloys per national standards and from more than 20 alloy grades per international standards of 1000 - 7000 series. The ingots are cast by semicontinuous method into sliding crucibles and are of different shapes: round solid and hollow, flat ingots. Rolling equipment available at VSMPO is used for manufacture of aluminium alloy plates.

Horizontal hydraulic presses with the capacity of 20000, 12000, 3150, 3000 and 1000 ton-force and a modern automated press system with the capacity of 2400 ton-force allow manufacture of unique large-sized extrusions for aviation; solid, hollow, thin wall special sections, and also seamless tubes for nuclear industry. VSMPO produces 800 items of extruded semi-products of various shapes.

In July 2008 at the aviation show in Farnborough Sergey Chemezov, the General Director of “Rostechnologies”, informed the journalists of the following: “By the end of this year a joint Russian-American venture will be established in the Ural Region. It will produce no more stock but finished products of premium quality for Boeing. The products will be delivered directly to Seattle, to Boeing plants.”

Today the Company’s partners show more interest in finished items and assemblies for final assembly. The issue relates to deep processing – processed die forgings, engine parts. In the nearest future this niche in the segment of titanium deep processing will be occupied by the Company.

If now only stocks for landing gear and other aircraft structures are delivered to Boeing plants in Seattle, then soon precision and certified products that do not require additional processing prior to installation on the board being built will be delivered.

Modern high-precision equipment is already being installed at the joint venture facility. The only concern of the Company in this field is skilled workers. There is a demand for machine operators – now it is a common concern of the Russian defense and industrial complex.

The advantage for Boeing is evident – the company reduces costs, as stock transportation and processing at the partners’ facilities in Japan and Europe is much more expensive than in Russia. There is one more interesting advantage for VSMPO – processing scrap, which is nothing else but chips of premium quality titanium. It means tons of metal that is kept and reprocessed at the factory. Earlier its cost reduced expenses of the buyer of stocks and ingots.

The committee of the national award “Leaders of Russian Economy” decided to give an honorary title of “The best Russian Company” to VSMPO-Avisma Corporation. As stated in the press release, the decision was ‘based on the fundamental analysis of the economic accounts provided by the Federal State Statistics Service, business reputation and social activity of VSMPO-Avisma.” The honorary award will be presented on October 24, 2008 in President-Hotel Complex in Moscow.