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Job Air Technic is implementing several strategies to stay resilient in the face of supply issues from the sanctions on Russia.
Aircraft maintenance organizations are feeling the pressure from the European Union’s sanctions on Russia and consequently are diversifying their supplier base and reassessing their strategies to mitigate increased costs, longer lead times and compliance issues.
The European Union (EU) has imposed unprecedented sanctions on Russia since the country’s full-scale invasion of Ukraine in February 2022 through a series of packages now totaling 13. Several MROs have reported challenges with a scarcity of raw materials arising from provisions in the 12th package of sanctions.
“Specifically, these provisions prohibit the import or purchase of raw materials for steel production, processed aluminum products and other metal goods originating from or exported from Russia,” FL Technics CEO Zilvinas Lapinskas says.
Lapinskas notes that authorities also may require a “mill test certificate” or similar documentation for aircraft parts falling under Combined Nomenclature Categories 88 (aircraft, spacecraft and parts thereof) or 84 (engines and motors) during import procedures. He says this additional requirement can occasionally prolong customs and import procedures, as only manufacturers can provide such documentation.
“Typically our partners and manufacturers are cooperative and supply us with the necessary information,” Lapinskas explains. “However, in urgent situations such as an aircraft-on-ground scenario, we may need to exert additional effort to obtain this information promptly to avoid delays in the aircraft maintenance process.”
Job Air Technic in the Czech Republic has encountered challenges sourcing essential components and materials, which has increased costs and lengthened lead times for procurement, thereby hindering operational efficiency and profitability, according to Chief Operating Officer Kaspars Podins.
“MROs are compelled to seek alternative suppliers within the EU and beyond, adding complexity to procurement processes and affecting operational efficiency,” Podins notes. “Additionally, ensuring compliance with the new provisions has added administrative burden and complexity to the procurement process.”
In Lithuania, Heston Materials CEO Kestutis Volungevicius also has seen challenges, but mostly from compliance, additional paperwork and bureaucracy. “Most importantly, we need to understand the reasons and relevance of these sanctions and for every company to openly participate in the sanction implementation process,” he says. Companies need to adapt their processes to comply with sanctions.
Titanium Sourcing
The difficulty sourcing raw materials, particularly those that are plentiful in Russia, is significantly affecting aerospace and MRO services worldwide, observes Tristan Brouard, associate vice president for asset management at ACC Aviation. “The aerospace industry relies heavily on materials like titanium, aluminum and composites,” he says, noting that Russia being a major titanium supplier means “this shortage is leading to longer lead times for production and repairs, higher prices and increased costs for parts and materials.”
Brouard sees smaller MROs being especially affected due to their tighter budgets. The new EU sanctions are further disrupting supply chains, adding compliance challenges and delays. “MROs must navigate unpredictable supply availability, leading to either capital-intensive overstocking or risky stockouts that delay maintenance schedules,” he explains.
The most concerning raw material is titanium. Safran sourced 50% of the titanium used in its landing gears from Russia before Feb. 24, 2022. Since then, the French aerospace and defense company has transitioned away from its reliance on Russian titanium producer VSMPO—the largest supplier in the world—by seeking other titanium suppliers.
Safran states that qualifying a new source takes 24-36 months, depending on the complexity of the parts to be produced. “For sources already in place, the increase in production volumes can only be done gradually and thus, during this transition period, Safran continues to source from VSMPO,” the company tells Aviation Week.
Safran emphasizes that it strictly complies with all export control regulations, applicable international sanctions and embargoes. In response to a question on aftermarket services, the company said it had ceased all activities with Russian businesses in February 2022.
Parts Costs and Supply
The fallout from the ban on aircraft parts sales to operators flying into Russia is shrinking the market, reducing trade volume and raising costs for the remaining participants, Brouard notes. He has observed companies relocating supply chains to countries not subject to sanctions, but at a higher cost, as sourcing alternative suppliers can drive up prices.
Because Russian operators are unable to buy Western aircraft or components from EU member states, Brouard says, MRO providers servicing Russian aircraft face “higher demand to prolong fleet life, strained facilities and increased costs.” In addition, he notes, MROs and aftermarket service providers in the region “face extra compliance costs, including legal and administrative, often passed on to customers.”
Lapinskas agrees that these restrictions inevitably have influenced the cost and availability of aftermarket services across the region, making portfolio diversification integral to FL Technics’ strategy.
“We continuously adapt and refine this process, considering it a vital component of our business continuity strategy,” he says. “Our network of dependable partners and longstanding relationships play a crucial role in mitigating risks associated with sanctions breaches.”
However, Lapinskas has seen that ensuring compliance with these regulations demands additional resources. “We invest in the development, implementation and regular updating of an EU sanctions compliance program tailored to our business model, geographical operations and portfolio specifics,” he says. “Over the past few years, the cost of compliance has risen, prompting us to seek ways to minimize its impact through the adoption of best practices and the streamlining of work processes.”
The ban on aircraft parts sales to Russia may have shaken up cost and supply in the regional aftermarket, but Podins at Job Air Technic thinks other supply chain issues, including higher fuel and logistics costs, may contribute to overall cost increases for aftermarket players. He also argues that the ban has led to surplus availability of certain parts and materials in the EU market, potentially mitigating cost increases for those specific components. Nonetheless, he says, “MROs may still face challenges in managing operational expenses and ensuring competitiveness, considering these broader economic and logistical factors.”
AeroDynamic Advisory Principal Jonas Murby believes the sanctions’ effect on the leasing market, which includes prohibiting the reexport of aircraft to Russia, likely will be minimal. “It may add some complexity and cost to the contracting and compliance departments of the EU lessors,” he says. “Plus you will see a slight tilt away from smaller airlines, less financially secure operators and markets neighboring Russia toward larger airlines in more geopolitically stable markets.”
Murby asserts sanctions could also deter certain airlines from dealing with EU-based lessors, but industry overall is still supply-constrained with too few aircraft. “I would expect these hurdles to balance out,” he says. “Even with increased cost and complexities, the leasing market remains very robust.”
Brouard states that the ban on reexporting leased aircraft to Russia could affect the aircraft leasing market considerably. “Lessors must ensure lessees comply, reducing leasing flexibility and increasing compliance burdens,” he says. “Lessors may become more cautious, segmenting portfolios to avoid reexport risks, potentially fragmenting the market with regional focuses.”
Reducing Risk
FL Technics has introduced rigorous measures to mitigate risks associated with EU sanctions on Russia. First, all counterparties undergo thorough onboarding and due diligence procedures. Lapinskas says this involves mandatory identification, data verification and assessment of reliability and risk level for clients, suppliers and partners.
“Moreover, contractual clauses with business partners prohibit further reexports of items to Russia and Belarus, forming a routine aspect of our operations,” he adds.
On a transaction level, Lapinskas notes, transportation and logistics routes are meticulously evaluated to determine the true consignee, involved parties and cargo destination. Special scrutiny is given to countries neighboring Russia or Belarus, or those known for circumvention activities.
Job Air Technic also is implementing strategies to build up supply chain resilience, including monitoring regulatory developments and compliance while diversifying the supplier base. “Furthermore, we are proactively engaging with OEMs and partners to explore alternative solutions and mitigate potential disruptions to Job Air Technic operations,” Podins tells Aviation Week.
