First Criticism, Then the State Bonanza Package for Sukhoi
Russian state signs record deal with aircraft manufacturer for fighter aircraft
08:06 GMT, August 19, 2009 defpro.com | If not for the sad news on Sunday of the crash of two Russian Sukhoi Su-27 jets during an exercise for the MAKS 2009, this year’s air show in Moscow would have been near-perfect for the Russian aircraft manufacturer Sukhoi. Although business for Sukhoi at MAKS started with some slight criticism by Russian Prime Minister Vladimir Putin, a possible major contract for fighter aircraft was announced the day before the show on 17 August, saying that contract drafts had been finalized and were signed yesterday at the show.
Deputy Minister of Defence, Vladimir Popovkin, and Mikhail Pogosyan, CEO of Sukhoi, signed three agreements for different Sukhoi fighter aircraft versions worth a total of 80 billion roubles, respectively US$2.5 billion. Within this deal the Russian Air Force will receive 48 Su-35S strike fighters from 2010 to 2015, 12 Su-27SM from 2009 to 2011, and four Su-30M2 by 2011. The news of the agreement – being a “record in modern Russian history,” according to Putin – had been announced in a joint statement by Sukhoi and the Ministry of Defence.
As long as the money flows...
Earlier, when Putin attended the opening ceremony of the MAKS air show, the Prime Minister made news with two statements of quite differing nature. First, he announced that the Russian government pledged to financially support domestic aerospace manufacturers with significant state investments, calling the development of the aircraft industry and space exploration one of Russia’s priorities.
"We are planning to continue investing heavily in these branches of the economy, to set up competitive enterprises capable of capturing their niches in the market, and to generate resources for the modernisation of existing assets," the prime minister said, certainly aware that financing of the Russian aircraft industry has increased 20 times in the past five years. It was obvious that a large chunk of the planned funding would benefit the well-being of Sukhoi.
However, despite the Prime Minister’s criticism of Russia’s United Aircraft Building Corporation (UABC) for selling aircraft to domestic and foreign companies at a loss, Sukhoi received the all-important fighter deal. As the Moscow Times reported today, Sukhoi will, in addition, receive a capital injection of 3.2 billion rubles ($100 million) from the state budget, according to Putin. The government is also considering giving 15 billion rubles ($469 million) to RAC MiG, another fighter manufacturer that, along with Sukhoi, is part of the UABC.
At the same time, Sukhoi reached agreement with Russia’s bailout bank, Vneshekonombank (VEB). The latter will finance Sukhoi’s investment programmes as well as the construction and production of the Su-35. Although, according to the VEB chief Vladimir Dmitriyev, no contract with VEB has been signed so far and is not expected to be signed during MAKS, VEB is considering expanding its support for Sukhoi, including financing the leasing of Sukhoi Superjet 100s to Aeroflot. VEB Leasing reportedly is looking to soon purchase ten aircraft for some $250 million.
All in the same boat
In the light of the company’s debts and the still unknown scope of the financial crisis for Russian aircraft manufacturers, the record success, as well as the additional support through the Russian government and the VEB, comes just in time. In his recent statement, Putin said the UABC and its subsidiaries owed some $3.7 billion to creditors, and that previous plans to pay the debt through selling unprofitable assets, refinancing, or floating shares had failed due to the recent credit crisis.
“A number of the UABC's contracts for aircraft supplies, both to domestic and foreign consumers, have resulted in direct losses, instead of profits,” Putin said. Consequently, he called for steps to prevent the situation from continuing and instructed government departments to draft a financial rehabilitation programme for the national aircraft manufacturing sector by 1 October 2009.
Continuing to be a major player in the fighter market
Sukhoi may have some chance in snatching a part of the national and international fighter market to support its efforts in returning its figures to the black, as it offers some of the most state-of-the-art air-superiority and attack fighter aircraft in the world. Besides the MiG aircraft, Sukhoi jets include the most successful Russian military export goods in the aerospace sector. After the Eastern European market stalled at the end of the Cold War, Russia has exported a great number of aircraft to South American, African and Asian countries which, by then, had no domestic fighter aircraft manufacturing capabilities or did not procure US fighter aircraft for various reasons.
One of Sukhoi’s most modern fighter aircraft currently available on the market is the Su-35, designated “Flanker-E” by NATO. It is based on the Su-27 design and is powered by two 117S engines with thrust vectoring. The Su-35 combines high manoeuvrability with the capability to effectively engage several targets simultaneously. Its armament comprises a 30-mm cannon with 150 rounds and a payload capability of up to eight metric tons on 12 external mounts.
Having so far ordered 48 Su-35S, the aircraft will be one of the most significant modern assets in the Russian Air Force. Russia's Air Force commander, General Alexander Zelin, recently announced that up to three air regiments would be equipped with Su-35 fighters in the future. Furthermore, Sukhoi reportedly expects to export at least 160 Su-35s to several counties. Since 2008, Russia has offered the Su-35 to India, Malaysia and Algeria. In addition, Brazil and Venezuela have expressed interest in purchasing the aircraft.
Nicolas von Kospoth
