By Allison Lampert and David Ljunggren
MONTREAL/OTTAWA (Reuters) -Bombardier obtained an exemption from recent Canadian sanctions on Russian titanium, its CEO said on Thursday, as it joined Airbus in securing a government waiver that allows access to the strategic metal.
Bombardier CEO Eric Martel disclosed the waiver during a call with reporters after the company reported strong orders during quarterly results.
Shares of the Canadian business jet maker were up 9% on Thursday afternoon in Toronto.
Canada in February became the first Western government to ban Russian titanium as part of its latest package of measures triggered by the war in Ukraine. Russia’s state-backed VSMPO-AVISMA has for years been a critical supplier of titanium for aerospace.
Two sources familiar with the matter said Canada’s decision to impose sanctions took other Western aerospace nations by surprise and provoked behind-the-scenes discussions between Ottawa and various capitals.
While Bombardier does not directly purchase Russian titanium some of its suppliers do, so the company needed an exemption, Martel said on the call.
“We did work with the government and we did work also with all our supplier base to make sure we were doing the right thing. But at the same time we needed to ensure you know that we keep running our factories,” he said.
On Tuesday, Reuters exclusively reported that Airbus had been granted a waiver. The move has been criticized by Ukraine’s ambassador to Canada, who told national broadcaster CBC that she had sought an explanation from the Canadian government.
On Wednesday, the Ukrainian Canadian Congress pressed the government of Justin Trudeau to enforce its own sanctions policy, while ambassador Yulia Kovaliv called the waiver “disturbing” on CBC following the Reuters story.
Canada’s foreign ministry says it has made clear to companies that they must find other sources of titanium.
The exemptions Canada has issued so far apply only to the aerospace sector, including the military, said a Canadian source with direct knowledge of the matter.
The sanctions exemption that Canada granted Airbus to allow it to use Russian titanium in its manufacturing is available only for a limited time, said the same source, who requested anonymity given the sensitivity of the matter.
RUPTURE OF UNITY?
Airbus CEO Guillaume Faury said the planemaker and others in the industry had secured Canadian approvals “to continue to source the small quantity of titanium that we still need.”
“The Western industry has very significantly decreased its exposure but there is still a certain flow of titanium that is coming and that enables a very large industry,” Faury told reporters in a quarterly results call.
“The other main countries of Western aviation have taken a different route which fits with our needs and our beliefs and we expect and we hope to continue to be understood,” he added.
Asked if he was concerned about the apparent breach in Western unity over Russian titanium, Faury said: “I don’t see it as a rupture of unity … but more as a way for the Canadians to deal with the situation.”
Earlier on Thursday, Bombardier reported improved margins with orders for its jets rising 60% in the first quarter, pushing the company’s backlog to $14.9 billion.
Bombardier also reported a higher-than-expected cash burn in the first quarter as it built inventory to support increased production of business jets.
Cash burn for the quarter through March rose 57% to $387 million, above analysts’ estimates of $361 million, according to LSEG data.
“While we continue to require more working capital investment in the near term, we will be well-placed in the second half of the year and well beyond,” Martel told analysts on a separate call.
The company is ramping up production this year of its super mid-sized Challenger jets which seat about 10, and it will expand manufacturing of its large-cabin Global aircraft in 2024, Martel said.
Bombardier is facing a challenge from rival General Dynamics’ Gulfstream, which is starting deliveries of its flagship G700 luxury jet that was certified last month.
Bombardier reported 20 aircraft deliveries in the first quarter, down from 22 a year earlier and said it is still on track to handover 150 to 155 jets this year.
Revenue declined 12% in the quarter due to a delivery mix favoring Challengers which are priced below the Globals.
Total revenue for the first quarter was $1.3 billion, below estimates of $1.5 billion.
(Reporting by Allison Lampert in Montreal, David Ljunggren in Ottawa and Abhijith Ganapavaram and Aatreyee Dasgupta in Bengaluru; Additional reporting by Tim Hepher in ParisEditing by Shounak Dasgupta, Franklin Paul, Matthew Lewis and David Gregorio)
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