WILL UABC TAKE RUSSIAN AIRCRAFT-MAKERS OUT OF SPIN?


08.02.07
MOSCOW. (Yuri Zaitsev for RIA Novosti)

In the 1990s the Soviet aircraft industry entered a spinning dive. Shortage of funds, fast turnover of top managers, and frequent changes in the rules of the game sharply reduced aircraft manufacture, primarily for the domestic market. In many respects, the crisis was generated by the industry’s structure redundancy inherited from the Soviet times, when everything that could fly was put on a conveyor belt. Moreover, aircraft engine designers did not have to make low-noise engines with fewer harmful emissions. Brain drain, the ageing of experts, and their inability to keep abreast with modern technologies made a bad situation worse.

However, this years-long chaos did not destroy Russia’s aircraft industry. Freelance design bureaus united with plants, and signed contracts with air companies and investors at their own risk. They were slowly, but consistently increasing aircraft production, particularly, in the last few years. It became obvious that if Russia wanted to retrieve its global positions in the aircraft industry, it had to pool the efforts of its experts in this field. This idea won support of the authorities and the aircraft industry. On February 20, 2006, Russian President Vladimir Putin signed a decree to form a United Aircraft-Building Corporation (UABC) "to maintain the scientific-industrial potential of Russia's aircraft manufacturing sector, and to ensure national security and defense capabilities, and channel intellectual, industrial, and financial resources into developing modern aircraft hardware.”

The UABC unites almost 20 legal entities. Nearly all of them have a one-site full production cycle, including seven leading plants and five design bureaus. At the time of its formation, the corporation had a price tag of $4.8 billion. By 2008, this figure may reach $5.7 billion. The controlling interest (51%) belongs to the government.

Initially, private capital will have 25% of shares; later on, up to 40%. The UABC is planning to attract strategic investors from abroad. Its CEO Alexei Fyodorov has persuaded Putin that the majority of the latter will not buy more than 25% + one share. Today, the government owns 90% of the corporation. Its share will change, but is not likely to drop beneath 75%.

Duma deputy Alexander Lebedev thinks that this preponderance has brought government officials into the UABC’s management – its board of directors consists of ministers, military men, or state bankers. “We are again returning to government management -- the worst option in the market situation,” he said. Indeed, a government official is dealing with budget funds, and cannot be a true owner by definition, not to mention a good manager.

The UABC will work in four major directions: military aircraft; civilian and cargo planes; international cooperation; and spare parts business. The first session of the board elected Deputy Prime Minister Sergei Ivanov its chairman. In his view, the military and cargo aircraft sectors of the industry are more or less O.K., but civil aviation is in deplorable condition.

The fleet of domestic aircraft is rapidly depreciating morally and physically. Regional air companies are using 20- and even 30 year-old aircraft. Even later versions of Tu-204, Tu-214, and Il-96 were designed in the 1980s, and are lagging behind the modern safety and fuel-saving requirements. In the estimate of the Russian Transport Ministry, out of 2,500 aircraft, more than half have practically exhausted their resources, and must be replaced. Foreign experts predict that in the next 20 years Russian air companies will require at least 620 long haul and several thousand regional aircraft. In the most modest estimates, this will cost Russia about $80 billion. This huge sum will go to foreign aircraft-building companies if Russia fails to produce itself competitive planes of different classes.

Until recently, Sukhoi’s SuperJet 100 was considered the main regional project. Today, the government is also funding the Tu-334 family. Many experts believe that the latter are much better fitted for small airports in Siberia and the Far East with their obsolete infrastructure and poor maintenance. The aircraft has already gone through certification, and can be launched into serial production at a minor expense once there are reliable orders from air carriers.

Despite some difficulties, domestic aircraft-makers have collected orders for almost 150 planes by 2008, which will give them a much-needed break – they will keep the production going and simultaneously upgrade it until the fleet receives MS-21 short and middle range airliners.

To sum up, the UABC will guarantee a rather calm life to aircraft builders, at least at home – massive decommissioning of passenger planes will compel Russian carriers to buy homemade aircraft, especially if the recent restrictions on the import and use of planes older than 25 years are re-imposed. There are proposals to protect the domestic market against foreign aircraft, which have exhausted more than a quarter of their resources, and to introduce higher duties on airliners older than eight or nine years.

Clearly, aircraft-makers will lobby to keep foreign airliners away from home, which will allow Russian designers to work without much strain. Each UABC unit (a former independent design bureau) will focus on the given models, and may forget about rivalry. This is a departure from the Soviet times, where design bureaus were competing against each other to a certain extent.

Being a monopoly, the UABC wants subcontractors to compete. Experts believe that Russia should have at least two engine-builders (the air engine determines the performance of any aircraft by 50%), and companies developing and producing on-board electronics, as well as some independent manufacturers of standard aircraft equipment. This position is understandable – second-level competition will produce quality hardware, and ward off monopoly dictate. However, Rosprom (Ministry of Industry) head Boris Alyoshin said that in 2007 they will try to unite Russian aircraft engine makers, but not under the UABC.

Eventually, Russia’s carriers will have to take whatever the manufacturers give them – like in Soviet times. Naturally, Russian passengers will be paying for this – both with money and in flight comforts.

Yuri Zaitsev is an academic advisor at the Russian Engineering Academy.

The opinions expressed in this article are those of the author and may not necessarily represent the opinions of the editorial board. -0-