By Allison Lampert and David Ljunggren
MONTREAL/OTTAWA (Reuters) – Bombardier has received a waiver from recent Canadian sanctions on Russian titanium, its CEO said on Thursday, as it joined Airbus in securing a government exemption allowing access to the strategic metal.
Bombardier CEO Eric Martel announced the waiver in a call with reporters after the company reported strong orders in its quarterly results.
Shares of the Canadian business jet maker rose 9% in Toronto on Thursday afternoon.
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. The state-backed Russian company VSMPO-AVISMA has been an important supplier of titanium to the aerospace industry for years.
Two sources familiar with the matter said Canada’s decision to impose sanctions surprised other Western aerospace nations and provoked behind-the-scenes discussions between Ottawa and various capitals.
While Bombardier doesn’t buy Russian titanium directly from some of its suppliers, the company needed an exemption, Martel said on the call.
“We have been working with the government and also with all of our suppliers to ensure we do the right thing. But at the same time, we had to make sure that you know that we continue to operate our factories,” he said.
On Tuesday, Reuters exclusively reported that Airbus had been granted an exemption. The move was criticized by Ukraine’s ambassador to Canada, who told national broadcaster CBC she had sought an explanation from the Canadian government.
On Wednesday, the Ukrainian-Canadian Congress urged Justin Trudeau’s government to impose its own sanctions policy, while Ambassador Yulia Kovaliv called CBC’s waiver after the Reuters story “disturbing.”
Canada’s foreign ministry says it has made it clear to companies that they need to find other sources of titanium.
The exemptions granted by Canada so far apply only to the aerospace sector, including the military, said a Canadian source with direct knowledge of the matter.
The sanctions exemption Canada granted Airbus to allow it to use Russian titanium in its manufacturing is only available for a limited period of time, said the same source, who requested anonymity given the sensitivity of the matter.
Break of unity?
Airbus CEO Guillaume Faury said the planemaker and others in the industry had received Canadian approvals “to continue to source the small amount of titanium we still need.”
“Western industry has reduced its exposure significantly, but there is still some inflow of titanium that allows for a very large industry,” Faury told reporters in a quarterly earnings call.
“The other major Western aviation countries have chosen a different path that meets our needs and beliefs, and we expect and hope that we will continue to be understood,” he added.
Asked whether he was concerned about the apparent rupture of Western unity over Russian titanium, Faury said: “I don’t see it as a rupture of unity … but rather a way for Canadians to deal with the situation.”
Earlier Thursday, Bombardier reported improving margins, with orders for its jets rising 60% in the first quarter, lifting the company’s backlog to $14.9 billion.
Bombardier also reported higher-than-expected cash burn in the first quarter as it built up inventory to increase production of business jets.
Cash burn for the quarter ended March rose 57% to $387 million, above analyst estimates of $361 million, according to LSEG data.
“While we continue to require higher working capital investments in the near term, we will be well positioned in the second half of the year and well beyond,” Martel told analysts in a separate conference call.
The company is increasing production of its super-midsize Challenger jets, which seat about 10, this year and will expand production of its large-cabin Global aircraft in 2024, Martel said.
Bombardier faces a challenge from rival General Dynamics’ Gulfstream as it begins deliveries of its flagship G700 luxury jet, which was certified last month.
Bombardier reported 20 aircraft deliveries in the first quarter, compared with 22 a year ago, and said it was still on track to deliver 150 to 155 jets this year.
Sales fell 12% in the quarter due to a supply mix favoring Challengers, which are priced below Globals.
Total first-quarter revenue was $1.3 billion, below estimates of $1.5 billion.
(Reporting by Allison Lampert in Montreal, David Ljunggren in Ottawa, Abhijith Ganapavaram and Aatreyee Dasgupta in Bengaluru; Additional reporting by Tim Hepher in Paris. Editing by Shounak Dasgupta, Franklin Paul, Matthew Lewis and David Gregorio)