Published: 1/31/2001

The last few weeks have seen a flurry of activity around the task of merging the entities within the Russian aerospace industry, with plans due to be presented to government during March according to the Ministry of Industry and Science. The plans, according to reports, call for the sheparding of various assets into a series of unified state controlled structures containing producers, engine manufacturers, component and avionics companies. The basic plan however, differs little in the military sector at least, from those plans proposed at the beginning of 1999 by the then Deputy Prime Minister Yury Maslyukov, for the creation of a single combat aircraft company under the leadership of Sukhoi. The pressing question for those looking at the industry is will the plans be accompanied by execution? Despite broad acceptance of the logic of restructuring among the leadership of the industry led by Yury Koptev, General Director of the aerospace agency and Alexander Dondukov, the government minister responsible for the industry, plans historically have remained largely on the drawing board. The key tests for the judging restructuring plans therefore will be physical change and the speed of that change. This will inevitably mean the politically painful closure and shrinkage of large parts of the industry. Although in some cases this has occurred already in all but name, through a combination of absence of work and payment for staff. The really tough decisions will be the consolidation of surplus production and design capacity often in economically sensitive locations. In the civil sector, Aviakor, the older of the major facilities, looks ripe for potential closure or retrenchment, as its owner Siberian Aluminium appears less interested in continuing to invest in the aerospace production and its two potential projects the An-140 and An-70 look increasing unlikely to reach full production with Aviakor at least. The An-70 particularly is also being heavily bid by the Aviastar facility in Ulyanovsk, with considerable political muscle being deployed in favour of the programme's transfer. The removal of capacity is also not the complete answer and the funding of the civil aircraft industry remains a pressing matter. Government has been subjected to considerable lobbying for the creation of a state backed leasing structure over the last five years and it seems likely that a government guaranteed structure will emerge to prime the development of leases. In the military sector, the design houses are vastly oversized for their current workload and Yakolev particularly, (despite the fact that Dondukov is reported to retain the position of General Director) appears to be destined for the absorption of its only current programme the Yak-130, by a larger combat aircraft entity. MiG will lose out to Sukhoi, the latter having used its considerably higher revenues of late, to give it considerable technological edge over the under funded and aging MiG bureau. MiG's efforts to avoid what some see as an inevitable marriage, have manifested themselves in the Tu-334 airliner, which privately Nikitin of MiG believed offered a relationship with Tupolev, in a vain effort to preserve some ascendancy for the MiG management team in the face of a scenario under which Sukhoi would dominate any combat aircraft company. MiG's situation has been made all the worse by its dwindling influence within the corridors of the power leaving it increasingly vulnerable and potentially a victim of integration before the end of 2002. Among the producers, the some what laisse faire development of the fighter production and upgrade business by the various plants mainly situated in Siberia and heavily supported by their regional governments; is a barrier that any industry consolidators will have to climb. Recent reports however, have suggested that the government may be going with one producer KnAPPO as a core for the military sector restructuring. A view supported in the eyes of some at least, by a recent visit to the plant by Dondukov's deputy Leonid Safanov. Previous restructuring of the sector into the joint stock companies while receiving the reluctant acceptance from producers after considerable pressure was generally viewed as being nothing more than a shuffling exercise without any central control by the lead entities such as Sukhoi within AVPK Sukhoi. The future restructuring will therefore have to be a far more decisive process involving government enforcing its views on regional administrations and ensuring their acceptance of casualties. Recent statements from Dondukov have underlined the increasing belief that the industry, may have reached the point of no return and must accept and implement radical change. He has clearly stated that if the Russian industry does not develop a competitive fifth generation fighter the industry will be dead in the water and deprive much of the industry of any hope of a future. This view is supported by a wide range of participants including the Russian Air Force, who see the current battles between MiG and Sukhoi as not providing then with the fifth generation product they need. The export agency equally sees a diminishing order flow in the medium term, as the current products, despite extensive upgrade, look increasingly uncompetitive.

Article ID: 2330