Occupying a unique position among air shows, MAKS will be of a similar scale to Paris or Farnborough, but with few Western products on display
Vladimir Karnozov / Moscow
The most important trends in the development of the world's aviation and space industries - globalisation and rationalisation - are not passing Russia and other CIS states by. This year's Moscow air show - MAKS - will be held on 14-19 August under the banner of the Russian aviation industry's continuing integration and its move toward intensified co-operation with foreign companies.
The first half of this year has seen many decision-makers coming to Moscow to sign agreements and launch new projects. Among them were Boeing chairman Phil Condit in April, Indian defence minister Jaswant Singh in May and then French President Jacques Chirac, accompanied by EADS co-chief executive Phillippe Camus, in July. The most recent was Chinese Premier Jian Zemin.
Increased international co-operation is the key to securing new foreign orders for the industry, in which Russia's healthiest enterprises earn 70-90% of their income from overseas sales. Most are in the military sphere, with Russian arms exports standing at $4-5 billion a year, half of which is generated by combat aircraft. Russian space companies also generate a steady income in hard currencies, mostly on services that involve launching commercial payloads into orbit, using Proton, Soyuz and Kosmos rockets.
The potential of civil aircraft sales has yet to be fully explored, but there have been positive developments on this front too. One example is primary Sukhoi Su-30 fighter manufacturer IAPO's investment in the Beriev Be-200, Be-132MK and Ilyushin Il-214 projects, with an eye on export sales.
With competition growing in international markets, the Russian aerospace industry needs to be more focused to ensure internal competition does not put domestic companies at a disadvantage compared to foreign ones when bidding in international tenders. Two serious steps in that direction were taken last year, when the status of the Rosaviakosmos and Rosoboronexport state agencies was enhanced to the point that they virtually became ministries. This year, the government moved further forward by making a strategic decision to form two aerospace giants, merging virtually all the major platform designers and manufacturers into two concerns, codenamed SVK-1 and SVK-2 (Flight International, 22-28 May).
Firmly establishing the companies, however, is likely to take years. The time it will take for SVK will depend on the government and industry's success in finishing already-declared smaller industrial mergers. AVPK (Aviation Military Industrial Complex, Sukhoi), the formation of which was announced in 1997, is not yet a fully structured organisation.
The same can be said of the Ilyushin and Tupolev consortia which are meant to unite aircraft design houses with production factories. RSK (Russian Aircraft-building Corp MiG), a company which traces its history to the ill-fated MiG-MAPO, now claims to be "fully established", but small orders for its products (primarily MiG fighters and the MiG-AT trainer) have not yet allowed the company to exploit its organisational potential to the full.
Common technologies
The first experience of RSK MiG activities has led some managers at Rosaviakosmos to argue that it might be better to integrate the industry not according to "joint work for a final product" considerations (RSK MiG includes aircraft design and production firms, developers and manufacturers of avionics and engines for the MiG-29), but by "common technologies".
Some such organisations have been set up: Bodrunov's Aerospace Equipment consortium has united numerous avionics developers and producers, while NPO Saturn comprises three engine companies (A Lyulka-Saturn design house, Rybinsk Motors and UMPO production factories). In these two cases, the merger took place as a result of industry initiative, although with substantial governmental support. AVPK and RSK were formed by the government using "administrative measures".
The main barrier to mergers in Russia is the industry's excessive capacity which neither matches domestic needs nor the international market's demand for Russian aeronautic products. The organisational benefits of a merger do not matter if there are insufficient orders on its books. Understanding this appears to have led to the SVK decision, by which the government marries strong companies to weaker ones in the hope that the merger's management will find the best solutions to overcapacities.
A serious hurdle on the merger path has been Russia's weak legislative base and, in particular, the hostile environment created by the country's tax system. A company pays taxes to the treasury of the region in which it is registered, so regional authorities will oppose developments that will lead to the loss of tax revenue. Another factor is the opposition of trade unions in wealthy state-owned enterprises to turning their operations into joint-stock companies.
These factors have detoured AVPK Sukhoi's formation into a cul-de-sac; both the Khabarovsk regional administration and trade unions strongly opposed plans to turn KnAAPO, the Komsomolsk-upon-Amur-based primary manufacturer of Su-27 fighters, from a unitary state company into a joint stock company to achieve organisational unification with OKB Sukhoi, IAPO and NAPO - the other AVPK members.
Another problem has been a low volume of state orders for new aeronautic products. During Boris Yeltsin's term as president, almost all programmes to create new aeronautic lines were incorporated into federal programmes. As a result, limited funding was distributed among numerous projects, leaving individual programmes with insufficient funds.
President Vladimir Putin's administration says it intends to reduce substantially the number of federal programmes to provide better support to those that remain. In aviation, preference is being given to military programmes and establishing a national state-supported leasing system enabling Russian airlines get new indigenous airliners under a hire/purchase plan.
Despite the relatively low level of state funding available for federal projects, its significance cannot be underestimated. State funding paved the way for the new and highly capable Topol-M ICBM to enter service, potentially leading to the creation of a small, affordable and yet effective nuclear deterrent force commensurate to Russia's status as a military superpower.
State funding alone will not be sufficient to keep the Russian aerospace industry afloat. National banking resources need to become involved as well, and there are indications that the country's banking sector, badly hit by the August 1998 economic crisis, has recovered and amassed considerable cash resources. Bankers, however, remain cautious about long-term commitments, favouring short-term investment projects in the construction trade and other businesses. Nevertheless, the largest Russian bank - Sberbank - has provided credit for the construction of new Beriev Be-200 and Antonov An-124 aircraft. Other banks, such as Vneshtorg, Guta, MDM and Zenit, are also involved in funding national aviation programmes.
Unfortunately, airlines largely consider the 11-12% annual interest rates normally offered by Russian banks as unaffordable. It was the lack of affordable financing on the market which made Sibir, KrasAir and DalAvia airlines embark on complicated cash/barter deals in which metal and electrical power produced in their home regions were used as payment to production factories for new aircraft.
The high cost of finance has been a major problem for the few Russian airlines willing to renew their fleets. New indigenous airliners, such as the Ilyushin Il-96-300 (priced at $35 million) and Tupolev Tu-214 ($25 million), are not always economically attractive propositions to airlines, despite being considerably less expensive than similar Western designs. Aeroflot seems more interested in purchasing additional Airbuses and Boeings than Ilyushins and Tupolevs, as the Western aircraft are offered on lease terms at affordable rates, while being more reliable. A fleet of Western airliners makes the airline more attractive to foreign investors; it helps the carrier build accounting systems which are more understandable to foreigners.
Yet the fleets of Soviet era-built Tupolev Tu-134/154s, Ilyushin Il-62/76/86s, Yakovlev Yak-40/42s and Antonov An-24/26s belonging to most Russian airlines have seating capacities that far exceed the demand in the market for air transport.
Asia and Europe
Russia, being part of Asia and Europe, has always had to face the question of with whom to make friends. Naturally, such decisions must be made on political and economic considerations. The largest clients for the Russian aviation industry are India and China. India alone has awarded Russian companies contracts for military aircraft worth $5 billion (deliveries and license production of Su-30MKI fighters, upgrade of the MiG-21bis to UPG standard and Mil helicopters) and more contracts are being negotiated, including an order for naval MiG-29Ks and Kaman Ka-31s. Chinese contracts have also been substantial, measured in billions of dollars for delivery and licence production ofSu-27/Su-30 fighters.
In the meantime, Boeing estimates its commitments into CIS programmes at $1 billion. EADS, the other large Western partner, recently signed a 10-year framework agreement with Rosaviakosmos on over 50 joint programmes, saying that fulfilment of the agreement will generate a turnover worth e2.1 billion ($1.83 billion) for the Russian industry. But "commitments" and "agreements" are not orders.
The West will probably continue to lag behind China and Indian in terms of major contracts with Russian industry, as the two Asian countries show an interest in joint development and production of dual-purpose and civil aircraft. Talks are in progress, for instance, on the Antonov An-70 and Ilyushin Il-214 airlifters. Another barrier to Western investment is that programmes are often connected with political issues.
For example, Proton launch quotas were tightly linked to non-delivery of rocket technology and weapons to Iran and India. Furthermore, there are indications that Western investments in the Russian aerospace industry often resulted from larger deals involving deliveries of Western airliners to Russian carriers.
Both Yeltsin's and Putin's administrations have followed the politics of compromise, trying to develop co-operation with both East and West. Although dealing with the West is often much more complicated, the Russian leaders realise that such co-operation promises many advantages in political and technological areas, despite the competition between Western and Russian products in Third World markets.
Russia's industrial relations with the West have passed through several stages, from high optimism in the late 1980s-early 1990s to almost zero mutual interest several years ago. At their peak of optimism, Western airliner makers believed the Russian market would generate sales of 400-500 units, a perception dampened when actual sales amounted to one-tenth of that.
Both the West and Russia were disillusioned. No major sales of Russian aeronautical products were made to the West - the only exception being Sukhoi sport aircraft. The broken dreams led to accusations that such companies as Airbus, Boeing and Pratt & Whitney were trying to destroy the Russian industry's competitive sectors.
The low point in this complicated relationship has passed and joint programmes are picking up. Companies that continued to co-operate during the difficult years are beginning to see results in a few mutually beneficial projects. Among those are successful joint marketing of the Russian Proton and Soyuz launch vehicles on the international market; building the International Space Station (two core modules were built and put in orbit as a result of joint funding); using Antonov An-124 Ruslan capabilities on the outsized cargo market; and use of Russian titanium in producing Airbuses and Boeings. Russia's involvement on the market has led to a reduction of prices for titanium of 20-30%.
Years of working together have resulted in the development of co-operation schemes in which the Russian industry gets involved in long-term international programmes without losing its national identity. Boeing is teaming with Sukhoi and Ilyushin on a future regional jet and, reportedly, is offering Russian industry a share of work on its sonic cruiser. A 10-year co-operative agreement with EADS calls for using Russian-made parts in Airbus A320, A330/340 and A380 airliners.
New trends
All these new trends and programmes will be evident in one way or another at MAKS 2001, which could open the doors to new ventures. It is expected that Boeing, EADS, General Electric, Lockheed Martin, United Technologies and other prominent Western companies will announce additions to their CIS programmes.
MAKS occupies a unique place among global air shows, being close in size to Paris and Farnborough, but having few foreign-made aircraft on display. Most of MAKS' numerous exhibits are made in Russia and the CIS, MAKS being the only large show where almost all Russian and CIS aeronautical products can be closely inspected by foreign visitors.
The entire ranges of Sukhoi and MiG fighters are due to appear, both on the ground and in the air. Among those will be the first series production examples of the Su-30MKI and Su-30MKK multi-role fighters, the S-37-1 Berkut experimental fighter, the Su-27KUB naval Flanker, theMiG-29SMT and the Indian version of theMiG-29 carrier-based fighter. Sukhoi is likely to roll out its newest civil designs - the first prototypes of the S-80 regional turboprop and Su-38L agricultural aircraft.
Kamov will display the Ka-60 Kasatka and Ka-52 Alligator, Ka-50N and Ka-226 helicopters which are undergoing flight tests, while its counterpart Mil will exhibit Mi-24VK1 and VK2 night-capable versions of the long-serving Mi-24 gunship, and the next-generation Mi-28/N attack helicopter. One of the Ansat prototypes, a light twin-turbine design from Kazan Helicopters will also be on display.
A range of recent airliners will be present, including the Tu-204/214, Tu-334,Il-96, Il-114/-100 and An-140. Yet again, only a small number of Western aircraft will be on display, but with the growing co-operation between Russia and the West, this may change at future shows.
On the engine front, MAKS 2001 will be the first international show for the newly-established NPO Saturn, the merged engine company, which will exhibit the latest versions of the AL-31 engine in use on Sukhoi fighters, the AL-55 thrust-vectored engine for the next-generation jet trainers and light attack aircraft, and theRD-600/TVD-1500 series turboprop and turboshaft engines destined for the Kamov Ka-60 Kasatka helicopter and Sukhoi S-80 regional airplane.
Samara-based NK Engines is likely to display the NK-93 shrouded fan engine. Destined for the improved variants of the Il-96 and Tu-214 airliners, the NK-93 needs $100 million to complete its development, which has already cost $900 million. Talks with potential foreign investors, including South Korea, continue.
Also expected are mock-ups of the rocket power plants being developed under the national cryogenic programme, experimental ram jet engines and other research efforts. Perm Motors will display its PS-90A2, an improved version of the basic PS-90A in use on the Tu-204/214 and Il-96-300 airliners.
Source: Flight International
