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Foreign Aircraft Builders Prepare for Soft Landing
// International Cooperation
The ILA2006 international airshow begins today in Berlin. Russian companies taking part in it will discuss large joint projects with their foreign colleagues to produce parts for planes and helicopters to be assembled abroad, overhaul and conversion of foreign aircraft and cooperation in aircraft design. Customs duties and limits on foreign participation in Russian aviation construction companies hamper these projects.
Friendship with Giants
Aircraft construction and related industries (especially engine building) are among the very few spheres of high technology in which Russian companies can work with foreign companies on a practically equal footing. That cooperation allows foreign firms to take advantage of Russian intellectual property in their own development. Russian firms take part in the relationship because of a lack of state or private financing and to advance their products on the international market.
Of the world's largest aviation builder, the U.S. Boeing and French Airbus, Russian companies have better relations with the latter so far. A preliminary agreement is to be signed today at ILA2006 between EADS, a European consortium that is 80-percent owned by Airbus, and the Russian Irkut and MiG corporations on the conversion of A320 passenger liners into freight planes. Irkut will produce all the necessary components (which is about 40 percent of the work) and the actual conversion work will be done at the main MiG plant in Lukovitsy. Passenger planes that have exceeded their 15-year guarantees will be converted into freight carriers. According to Vadim Vlasov, general director of the Russian division of EADS, conversion can take place along with the scheduled upkeep (known as a D-check) that is carried out after about 15 years of aircraft use. The cost of a D-check is about $1 million per plane. Vlasov said, however, that, if customs duties on aircraft parts are not reduced, EADS will be forced to perform D-checks and conversions of A320 planes in a country with more favorable customs rules.
On December 16, 2005, when an agreement was signed on the purchase by EADS of a 10-percent share in Irkut, Vlasov announced plans to expand the Russian enterprise to implement three programs with Airbus. Besides the conversion of A320 aircraft, there are plans for Irkut to produce some of the body components of the new long-range 250-300 passenger A350 liner that will take part in an Aeroflot tender. Airbus estimates that work on the program for the A350 alone will bring in up to $3 billion to Irkut in the course of the full production cycle. In addition, Irkut will be able to take part in the promising AXXX short- and medium- range plane program on a risk-sharing basis. The AXXX may replace the A320.
Trading in Projects
Foreign companies have had good experience with Russian intellectual property in aviation. The first Russian aircraft project was sold overseas in the 1990s. It was for the Yak-130 military training plane, which will begin showing up in the Russian Air Force only this year. A contract was signed in 1994 between the Italian Aermacchi and federal state unitary enterprise Promeksport (now Rosoboroneksport), the Yakovlev Experimental Design Bureau and Nizhny Novgorod Sokol Aircraft Plant for the development of the Yak-130. Because of its inability to finance the Yak-130 project on its own, Russia turned to a NATO member state and its competitor on the arms market for military technical cooperation. The Yakovlev bureau received the necessary $77 million, and the Italians received the project on which their M346 training plane is based. A predictable problem has now arisen. The Russian Yak-130 and Italian M346 will compete against each other in a tender in Malaysia. The Chinese L-15 training plane is to complete testing this year. It strong resemblance to the Yak-130 is confirmation of unofficial information that the Yakovlev bureau sold the same project to the Chinese as well.
Russian-foreign cooperation is not always that successful. Pratt & Whitney, part of the American company United Technologies, bought a 25-percent minus one share stake in the Perm Motor Plant, which was formed as a result of Interros's reorganization of OAO Perm Motors. In 1999, Perm Motor Plant began making parts for Pratt & Whitney airplane engines. Close to the same time, the American company also acquired 25 percent minus one share of the Aviation Motor Design Bureau, also in Perm. Pratt & Whitney undertook the redesign of the Perm Motor Plant's PS-90A engine and the cooperative design of a PS-90A2 motor, in which it invested $125 million. Pratt & Whitney had invested $60 million in the Perm Motor Plant by 2002 but, because of property disagreements with the Aviation Motor Design Bureau and insufficient funding on the Russian side, the creation of the PS-90A2 was delayed. A test model of the engine was made in 2005 and it is expected to be certified in 2007. The planes that use the PS-90 series of engines are no longer being made, however.
Legislative Encumbrances
The majority of foreign companies that produce aviation equipment say that the main problem with joint projects in the Russian Federation is the substantial limitations placed by Russian legislation. Article 12 of the law “On State Regulation of the Development of Aviation” of January 8, 1998, limits the share of foreign investors in the authorized capital of Russian aviation enterprises to 25 percent minus one share and forbids their participation in their management bodies. The Eurocopter company, the world's leading producer of civilian helicopters, pulled out of a joint project to develop and certify a Mi-38 model. It owned 33 percent of the stock in ZAO Evromil, set up in 1994 with the Moscow Mil Helicopter Plant and the Kazan Helicopter Plant. It was stated that the Mi-38 would carry 30 passengers or 5 tons of freight and would be a cheaper alternative to Eurocopter's EH 101 and Sikorsky's S-92 and even replace the Russian Mi-8 and Mi-17 helicopters. The cost of the project was estimated at $500 million. The Kazan Helicopter Plant invested about $300 million of its own money but, because of a shortage of funds, the first Mi-38 took to flight only in 2005. Kommersant has learned that the Oboronprom management company, which united the developers and producers of helicopters of the Mi and Ka series, has begun negotiations on the Mi-38 with United Technologies. It is mainly a question of certifying the Mi-38 in the United States. Oboronprom representatives have spoken of orienting the Mi-38 to the U.S., Canadian and Chinese markets.
In the Ministry of Industry and Energy's development strategy for the aviation industry through 2015, it is indicated that corrections to legislation are essential to expand opportunities for foreign stock capital to participate in aviation enterprises. In March of this year, it became known that the Ministry of Industry and Energy the Ministry of Economic Development and Trade conciliated a draft law limiting access by foreign investors to “strategic sectors,” which include “development, production, overhauling and testing aviation equipment, including dual-use aviation equipment.” A Kommersant source in the administration said that that the draft, developed by the Ministry of Industry and Energy, was introduced into the administration three times last year, and returned each time for conciliation among the key ministries.
The draft law would allow the free purchase of up to 25 percent of the stock in Russian companies on the “strategic” list, and the purchase of larger shares with the permission of a specially established administration commission. Director of the Ministry of Industry and Energy legal relations department Vladimir Taraskin told Kommersant that the draft law “On the Procedure for Making Foreign Investment in the Russian Federation in Commercial Organizations Having Strategic Significance for the National Security of the Russian Federation” should be introduced for consideration in June. Two options for the limit of the expansion of access by foreign investors to the capital of Russian companies with strategic significance are being considered. The main option is the purchase not of 25 percent, but of 50 percent, without permission and over 50 percent with the permission of an administration commission. The second option is the purchase of 30 percent without permission.
The right to carry out work using information that is a state secret, the right to import and export products with military applications to and from the Russian Federation, the fulfillment of state defense orders within the five years previous to filing and the presence of critical equipment in the production at an organization with strategic significance will be verified when a petition is filed. Industry and Energy Minister Viktor Khristenko has promised that the administration will ratify norms for the sale of a blocking package in the Sukhoi Civil Aviation Co., which is engaged in the project to create the short-range Russian Regional Jet. At the end of last month, Khristenko and Italian Minister of Production Activities Claudio Scajola signed a protocol of intentions in Moscow on aviation construction that would allow the Italian company Finmeccanica to acquire 25 percent plus one share in the Sukhoi Civil Aviation Co. in exchange for about ˆ300 million in investment. Sukhoi general director Mikhail Pogosyan expected to conclude the deal with Finmeccanica before the end of the year.
by
Alexandra Gritskova, Konstantin Lantratov
All the Article in Russian as of May 16, 2006
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