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U.S. Company Supplying Russian Military Seeks Exit, Caught Between Sanctions and Kremlin

The Samara Metallurgical Plant, a sprawling complex in southwestern Russia that spans an area the size of a dozen city blocks, is a cornerstone of Russian industry. It is the country’s largest supplier of aluminum commercial and industrial products.

It is also a source of critical parts for the Russian warplanes and missiles that are now tearing through Ukraine. And atop its edifice, spelled out in giant blue letters, is the name of its American owner: Arconic, a Pittsburgh-based, Fortune 500 company that is one of America’s largest metalworking firms even after splitting out from the industrial giant Alcoa in 2016.

Arconic does not make weapons. But its sophisticated forges are among a handful of machines in Russia that can form lightweight metals into large aerospace parts like bulkheads and wing mounts.

Under an agreement with the Russian government, the company has from the start of its operations at Samara, in 2004, been legally required to supply the country’s defense industry as a condition of operating a plant whose mostly nonmilitary output has proved tremendously lucrative.

Even as Russia turned its military toward ever more aggressive ends around the world and the relationship between the United States and the Kremlin soured, Arconic maintained the Samara operation, despite the growing legal and political complications of operating there.

Now, however, with Russia’s invasion of Ukraine polarizing the world, Arconic’s leadership has found that its business at Samara is, finally, unsustainable.

Though there is no indication that Arconic is in breach of American or other Western sanctions, those penalties have made it difficult to keep the plant supplied and operating. But shutting down production could expose its employees there to jail time under Russian laws on maintaining strategic production. And Russia has already cut off Arconic’s access to profits from the Samara plant.

“The conflict in Ukraine has made our continued presence in Russia untenable, which led to our decision to pursue a sale,” Timothy Myers, Arconic’s chief executive, said in a written statement on Friday.

Company documents acquired by The New York Times, along with financial filings and other public materials, reveal Arconic’s struggles to keep the plant running. The documents were provided by a whistleblower employee who objected to Arconic’s continued involvement in Russia even after the invasion of Ukraine.

On Wednesday, the day after The Times approached Arconic with details of its work in Russia, its board approved a plan that, according to internal documents, had been under internal consideration for weeks: to sell the plant outright. The company announced this decision on Thursday.

But any sale remains hypothetical, as the company does not yet have a buyer. And finding one would require regulatory approval at the highest levels from both the United States and Russia.

That is perhaps fitting, as those governments had cooperated to pave the way for Arconic’s ownership of Samara in the first place.

Now, the long-coming divorce, accelerated by the war in Ukraine, is proving costly, with European energy consumers and companies like Arconic caught between now-hostile powers.

“The era in which the United States and Russia saw each other as an enemy or strategic threat has ended,” Presidents George W. Bush and Vladimir V. Putin announced at a 2002 summit meeting in Moscow. Now, they said, “We are partners,” praising each other as like-minded allies in the war on terrorism.

Mr. Bush encouraged American companies to buy up Russian industries that had fallen into disrepair. Economic integration, it was widely thought, would bind Russia and the West for good.

American corporations snapped up whole factory compounds, once the engines of Soviet power. Moscow welcomed this, believing American financing and know-how might reconstitute Russian industrial might.

The American industrial giant Alcoa joined the gold rush in 2004, buying two complexes in Russia, including the one at Samara. It purchased both factories for $257 million but spent twice that rebuilding Samara, which it found running at one-third capacity.

Within the facility was a nine-story metal behemoth: a huge forge press that had been built right into the foundation, able to form the parts that make up the largest airplanes and missiles. It is one of only a handful like it in the world, including just two in Russia.

“These machines are essential to the defense industry,” Martino Barbon, a representative of the manufacturing firm Gasparini Industries, said, calling them “the backbone” of production.

In an interview, Mr. Myers said that Samara’s giant press had seen little use in recent years. Still, its presence, along with a number of smaller forges, underscores that Samara, like many Soviet-era facilities, had been designed to combine commercial and military work.

When it bought the Samara plant, Alcoa — which split part of its operations, including those in Russia, into the name Arconic in 2016 — did not explicitly seek to become a Russian military supplier. Rather, this was Moscow’s condition for the sale.

That condition remains in force, according to company documents that describe a legal obligation to “manufacture aerospace and defense products” for sale to Russia’s weapons industry.

Mr. Myers — who is now the chief executive and had been among the first employees to visit Samara in the early 2000s — said that the U.S. government knew about Moscow’s terms when it approved Alcoa’s purchase. The company’s Russian subsidiary sells most products through other distributors and therefore Arconic cannot control how those products are used, he said.

But company documents show that Arconic has known throughout that the Samara operation was supplying Russia’s military, even if it was only a small part of the company’s overall business.

Moscow required the company to sign an agreement, as a condition of purchase, that it would pledge to indefinitely supply programs that it deemed essential. Mr. Myers acknowledged these terms in an interview with a Russian news outlet just last year.

“The main condition of the deal,” Mr. Myers said, “was the obligation to ensure uninterrupted supplies” for “state defense and aerospace programs.”

The agreement included a supplemental document, a copy of which The Times acquired, detailing mandatory production contracts.

The file lists more than a half-dozen of Russia’s largest weapons-makers, such as N.P.O. Novator and Komsomolsk-on-Amur Aviation Plant. Altogether, the companies provide the bulk of Russia’s cruise missiles, ICBMs, attack helicopters, strategic bombers and other hardware.

The file applied to both plants, the second of which Alcoa later sold. But it underscores Russia’s insistence on steady military supplies — and the American company’s willingness to comply.

For Moscow, the greatest benefit may have been modernization: Western financing and know-how brought the plant from derelict to state-of-the-art.

For Alcoa/Arconic, this was the cost of admission to Russia. In financial terms, it paid off handsomely.

Last year alone, Samara brought in nearly $1 billion, accounting for 16 percent of Arconic’s third-party sales worldwide, according to financial filings.

Before long, a string of Russian military interventions, chiefly its annexation of Crimea in 2014 and its entry to the Syrian war the next year, transformed Western views of Russia.

Arconic found itself supplying, however indirectly, a Russian military that was now seen as a global threat.

Still, the company remained in Russia.

Moscow was no longer so welcoming. It codified sweeping “antimonopoly” laws allowing it to restrict or expel foreign companies involved in sensitive industries.

American companies became especially likely to face official investigation. This often came with supposedly temporary injunctions that make doing business difficult.

Richard Aboulafia, an aerospace industry consultant, said that Russia has since effectively seized control of many foreign-owned plants through what he termed “oligarchization.”

Rather than outright nationalize those businesses, Moscow coerces them into selling themselves off to Kremlin-linked firms, sometimes for pennies on the dollar. Just this week, the French automaker Renault sold a factory in the country to a Russian government-linked firm for one ruble.

In 2020, Arconic was hit with one such investigation. Russian officials barred Arconic from disbursing its profits from Samara or even restaffing leadership at the Russian subsidiary that runs the plant.

Richard Connolly, a University of Birmingham economist who advises companies on doing business in Russia, called it “very surprising” that Arconic, unlike many other American companies, had not yet been forced out of Russia.

From the Kremlin’s point of view, coercing Samara’s owners to sell the plant, as it has with several other American-owned business over the years, does carry some risk. It could disrupt production at a time when Russia already faces battlefield setbacks. But tolerating Arconic would mean leaving critical infrastructure in the hands of an American corporation.

Dr. Connolly suggested that Russian leaders may still see American knowledge and technology as too critical to lose at Samara, especially as battlefield losses wipe out advanced weapons that, because of sanctions, Russia may struggle to replace.

“They realize they might not be able to produce everything themselves,” he said.

Russia’s invasion of Ukraine, in February, forced difficult conversations within Arconic, according to internal documents and the account of a whistleblower employee who asked not to be named because the employee did not have the company’s permission to speak.

At the end of 2021, amid Mr. Putin’s buildup to war with Ukraine, Samara’s forging division had its best quarter on record, reporting an 82 percent increase in production from the prior year. An internal presentation touting the rise listed it under the heading “Aerospace.”

That constituted roughly one percent of the plant’s overall output, making it something of a financial afterthought compared with the rest of the company’s business.

Still, with Russian warplanes and missiles employed in shocking attacks in Ukraine considered to constitute possible war crimes, ethical considerations weighed heavily, according to the employee.

By March, even as sales poured in, Arconic’s leadership was exploring ways to leave Russia entirely, according to internal memos.

But any purchase would require the approval of the Russian government, as well as VSMPO-Avisma, the Kremlin-linked firm with which Arconic had formed a joint partnership.

Selling would also require a license from the Treasury Department to avoid violating sanctions.

Even as Arconic sought an exit, internal documents show that the company went to some lengths to keep Samara running.

As early as March, with shipping companies ceasing operations in Russia, the company began seeking new ways to supply the plant with production materials.

A few weeks later, the company concluded that, because of new sanctions, U.S.- and Europe-based employees could no longer work on efforts to supply the plant with materials, even from abroad.

The company shifted this work to its division in China, where employees were thought to be unconstrained by Western sanctions.

By early May, an internal presentation reported, Samara was hitting “numerous production volume records.” And sales were up: $233 million in the first quarter of 2022, from $195 million the year before. This likely reflected the commercial work that makes up most of Samara’s output, rather than military projects, but it underscored Arconic’s success in keeping the plant spinning at full speed.

Still, the company concluded around the same time, according to Mr. Myers, its chief executive, that the war would continue for a long stretch, and with it both the sanctions and Russian government restrictions constraining Arconic’s ability to operate. Mr. Myers said that moral considerations also factored into Arconic’s decision to seek to leave Russia.

That the partnership between Arconic and Russia ever seemed workable underscores how far the world has moved on from the notion that first brought them together: that economic integration would end a century of Russian-Western enmity and finally secure lasting peace.

Mr. Connolly, the economist, compared Arconic’s stake in Russia to Europe’s decision to build its energy grids atop Russian gas pipelines and oil shipments, which was thought to make conflict unthinkable.

Instead, European energy consumers are effectively funding Russia’s government even as they punish it with sanctions, much as Arconic appears caught up in Russian militarism that Washington had once hoped American investment might temper.

“It’s a really graphic illustration,” Dr. Connolly said, “of the dashed hopes of that era.”

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