|RUSSIAN AIRCRAFT INDUSTRY: PROBLEMS
MOSCOW. (Yuri Zaitsev for RIA Novosti)
On February 20, 2006, Russian President Vladimir Putin signed a
long-awaited decree on the establishment of the United Aircraft
Corporation, which is to be completed by the end of the year.
The government will control over 51% of the merged company, which will
unite 19 legal entities. Almost all of them are products of the industrial
era with a full one-site production cycle. This means about 100,000 people
will be employed in manufacturing and about 20,000 at design bureaus.
The share of private capital in the holding will at first be around 25%.
The second stage of its development envisages a new issue of shares and,
in March-May 2007, a merger with the Russian Aircraft Corporation MiG and
the Kazan-based Gorbunov aircraft production association, which are now
being converted into joint-stock companies. In addition, talks with a
large number of private shareholders have shown that they are willing to
convert their shares in the corporation's and its enterprises' stocks. So
the share of private capital will gradually increase to 40%.
The current situation in the Russian aircraft industry is as follows:
military and civil airplanes are produced at 13 specialized plants. Their
average volume does not exceed 35% of capacity, while the equipment and
technology remain at 1970s levels. The active part of their fixed assets
(about 83% of equipment) is outdated. Out of 10,000 assembly machines,
only 3% have a speed of above 5,000 rpm. The average age of the personnel
employed is over 50. Less than 10% of workers meet current qualifications
standards, and the industry's computerization lags terribly behind modern
Valery Bezverkhny, president of the non-profit partnership United Aircraft
Consortium, which was set up as a transitional stage for the United
Aircraft Corporation, says that the industry needs to be drastically
overhauled on the basis of new principles and technologies. But financing
for this major overhaul has yet to be found. At the same time, the excess
capacity leads to huge overhead costs and does not allow even the most
successful companies to feel confident. Some aircraft manufacturing plants
are on the verge of shutting down.
Civil-aircraft production faces the most serious problem. Demand for air
carriage is forecast to grow by at least 7% annually over the next 20
years. To meet it, the country will need about 1,500 airplanes, but the
Russian industry produces only about 10 airplanes a year; one a month on
average. For comparison, Boeing and Airbus produce one airplane a day.
Such airplanes as the Il-96, Tu-204 and Tu-214 were developed in the
Soviet era, but fifteen years after the Soviet Union's breakup they are
being produced in tiny numbers. The only exception is the version of the
Tu-204-120 with a Rolls Royce engine and Honeywell onboard equipment. The
Tu-334, work on which began in 1985 and which is eagerly awaited on the
Russian market, has still not been launched into mass production.
The new version of the Federal Target Program "Development of Civil
Aviation" adopted in 2005 sought to improve the situation, supporting
promising domestic projects. It introduced such notions as
‘transitional’ and ‘breakthrough’ products, which were to receive
the bulk of investment. One transitional project is the Russian Regional
Jet (RRJ) developed by Sukhoi. Its design is almost complete and it is now
being prepared for mass production, which, however, will not start until
2007 at the earliest. This means that it will appear on the market five
years after the creation of the similar Embraer airliner and later than
Ukraine's An-148. Obviously, RRJ should not be developed as a 70-passenger
aircraft, but rather should enter the 95-seat niche, and the next project
should be for 110 seats.
A ‘breakthrough’ Russian product in civil aviation is still only being
What airplanes carry Russian passengers today if the domestic industry
does not produce any?
Russia has about 180 airlines, with the top 25 controlling about 90% of
the market. As many as 75% of flights use outdated Soviet planes, 18% use
Western airplanes and only 7% use new Russian-made aircraft. At present
the Russian fleet numbers some 675 civil aircraft, of which 500 will be
scrapped by 2012. The Tu-154 and Tu-134 form the core of the fleet, but
most of them will become obsolete within the next 2-7 years.
Still, Russian airlines outperform their foreign rivals in the number of
domestic and international flights they operate. In 2005, they transported
35 million people, while foreign airlines only carried about 10 million.
Yet given its outdated fleet and failure to meet international
requirements established by other countries, Russia will lose its position
fast. A vacuum is never left empty, and the niche will be immediately
occupied by foreign companies.
The U.S.’s Boeing and Europe’s EADS hope to see a surge in orders for
passenger airliners from Russia and are getting ready for a competitive
struggle on the Russian market. Airbus, for example, plans to supply 300
aircraft worth $20 billion between now and 2024. If it does, it will edge
out Boeing, which is now the leader on the Russian market mainly due to
sales of used aircraft. Out of the 180 Western passenger planes now used
by Russian and CIS airlines, 144, or 80%, were made by Boeing.
Competing for both the Russian market and their prestige, both Boeing and
Airbus are actively developing cooperation with Russian aircraft
producers, taking advantage of their facilities and qualified personnel.
Irkut, of which EADS owns 10%, produces some parts and units for Airbus,
which is EADS's subsidiary. The concern has also offered Russia a 10-15%
stake in the program to modernize the A-320. Boeing is likewise
cooperating with Sukhoi on the development of the RRJ.
Still, Europe seems to be closer to Russia, and not only in geographical
terms. The latest news, announced by President Putin, was that Russia had
bought 5% of EADS. This was perhaps the reason for the reduction in
Russian airlines' planned purchase of Boeings from 40 to 20. Instead, they
will acquire 22 Airbuses.
Yet Russian air carriers will have to pay double the price of Russian
planes for their Western counterparts. Only large and sufficiently solvent
companies will be able to afford it, but they will save on operational
costs. For example, the Tu-154M needs 2.5 metric tons of fuel more an hour
than a Boeing 737. As a result, fuel accounts for 20-22% of the cost of an
airplane ticket in the West and for 45% in Russia, and this with the
constant growth of global oil prices! Saving on fuel makes flights more
profitable and allows opening new routes that at least break even.
However, a new airplane requires a big sum of money up front, which not
all airlines can afford. Experts say that liberalized leasing would be a
good solution, but only as a temporary measure while the Russian aircraft
industry recovers. So the government should both reduce tariffs on
imported aircraft and introduce deadlines on the exploitation of Western
planes by Russian airlines. Otherwise, the domestic market will again be
awash with used foreign-made planes, creating a serious obstacle to the
revival of the Russian aircraft industry. It will also jeopardize sales of
the domestic competitive aircraft, which are expected to go on the market
in 2012. But future successive sales will only be possible given a
sensible development strategy and support for the aircraft fleet through
cooperation between airlines and the United Aircraft Corporation.
As for civil cargo transportation, the sector now faces three priority
tasks, says Gennady Pivovarov, director general of the Volga-Dnepr
airline. They need to preserve their leadership in charter flights by
using their unrivalled ramp aircraft, secure a foothold on the market of
regular cargo shipments and develop the Russian market for express
deliveries. They also have to continue production and start using cargo
versions of the Il-96, Tu-204 and An-148. "Air transportation
infrastructure should be organized in line with market demand and oriented
toward providing transit and import-export cargo flows, as well as the
creation of a system of proper maintenance and servicing support for
companies engaged in cargo shipments," Pivovarov said.
Valery Okulov, CEO of Aeroflot Airlines, says that the Russian government
has not allocated sufficient funds for the modernization of airfields in
the eastern part of the country, which limits the possibilities of using
Russian-made wide-body aircraft for passenger transportation in those
regions. In addition, the absence of reserve airfields prevents Aeroflot
from achieving an acceptable cost-effectiveness on domestic passenger
The merging of Russian aircraft, helicopter and engine makers has long
been necessary. A helicopter-making holding company has already been
established. The integration of engine makers is ongoing. The United
Aircraft Corporation will allow state investment to be combined with
private capital, eliminate domestic competition and facilitate a more
active effort to sell Russian-made aircraft on the international market.
Experts estimate that production will grow 2-2.5-fold within the next ten
years and Russia will be able to win about 10% of the global aircraft
Yuri Zaitsev is academic consultant with the Russian Academy of
Engineering Sciences -0-