Airfleet-2009-1.pdf

CONTENTS

1.2009

(75)

PUBLISHED BY

ECONOMY PROBLEMS

Crisis and Russia ................................. 2

EXHIBITION

Under New Year Tree ......................... 20

SINCE 1997

PUBLISHER & CEO

Nikolay Laskov

FIRST DEPUTY GENERAL DIRECTOR

Alexander Chernov

PUBLISHING HOUSE EDITOR-IN-CHIEF

Vladimir Ilyin

The Russian President

Dmitry Medvedev Visits Salut .............. 8

Airshow China 2008 ........................... 22

MARKETING DIRECTOR

Alexander Kiryanov

KEY ACCOUNT DIRECTOR

Nina Gusyakova

CREATIVE DIRECTOR

Dmitry Bykovskiy

PR DIRECTOR

Sergey Kovalski

Vladimir Putin Visits

Tactical Missiles Corporation ............. 11

WARPLANES

J-10 «Tzianbin»:

«the dragon» is ready to fight ............ 25

EDITOR

Vladimir Karnozov

EXECUTIVE DIRECTOR

Vladimir Zhilinko

DESIGNERS

Alvina Kirillova

Sergey Velichkin

BIG BOSS TALKING

Ups & downs for United Aircraft ........ 12

IT DEPARTMENT

Anton Pavlov

ADA LCA light multipurpose fighter .... 34

PHOTOS IN THIS ISSUE:

Nikolay Laskov, Vladimir Karnozov, ITAR-TASS, HAL,

Chinese Ministry of Defence

Circulation: 10,000

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INDUSTRY

Zhuk-AE AESA

is ready for demonstrations

to the customers ................................ 16

CIVIL AVIATION

Arab capital for Aeroflot ..................... 44

ADDRESS

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Tel.: +7 (495) 626-52-11

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E-mail: af@airfleet.ru

www.airfleet.ru

ECONOMY PROBLEMS

144,98

PRICES FOR CRUDE OIL, BRENT

Vladimir Karnozov

CRI$I$ AND RU$$IA

After collapses in 1991 and 1998, the Russian economy was on the way of recovery for almost ten years, riding

on the back of rising oil and natural gas prices. Late last year the petrodollar income started contracting. This

poses a threat to Vladimir Putin’s grand plans on reinstalling Russia as a manufacturing nation. What is going

to happen to Russian aviation?

The world-wide financial crisis started in

autumn 2008, with liquidity problems hitting certain

North American banks. During the fourth quarter

of the past year it evolved into a global economy

downturn. Now, the crisis is taking its toll on

Russia’s power and capability. The country’s GDP

rose by 6% in 2008, against 7% in 2006-2007,

reflecting poor results of the last quarter. This year

GDP is expected to have no growth or even fall by

few percent.

The Russian power will continue to contract for

awhile. In crisis environment, the world’s consump-

tion of fossil fuels runs low. Manufacturers reduce

production rates due to weak solvent demand.

They buy less energy and raw materials to feed

their plants and factories. Economists believe that

Russian economy will go strong again after the

price of crude oil rises above 70 dollars per barrel. It

will be doing more or less OK with the figure within

the corridor of 50-60.

When this story was written, the price was fluc-

tuating between 37 and 45 dollars. That’s below the

critical mark. And this reduces the amount of money

at hand to support Russia’s ailing defense industrial

complex, military and civil aviation.

Kremlin strategists working on the country’s

2009 annual economy plan balanced it on the

assumption that during the year a barrel of crude

oil would sell at 50 dollar on average. There is some

hope their assumption may turn out right. It was

made in November, when the oil was selling for

merely 34-38 dollars. The strategists calculated,

however, that, even at 50 dollar per barrel, the

Russian economy will make losses.

The strategists have predicted a budget deficit

this year, after a decade of profitable growth. The

years of 2009 and 2010 will be to be critical for the

Russian industrial enterprises and airlines. Some

of them will fly into bankruptcy or be devoured by

larger and more stable players. The Russian govern-

ment has indicated that it is ready to buy stakes in

private and mixed-capital companies provided they

operate in the strategic areas or carry substantial

social function. This will increase state share in the

economy, on the account of private capital.

In December 2008 Kremlin-controlled struc-

tures increased their stake in NPO Saturn to over

50%. It made the first case in the recent Russian

history when privately-control aero engine manu-

facturer went back from the private hands to the

state control. Saturn makes D-30KP/KU turbo-

fans for Il-76TD/MD airlifters and Tu-154M airlin-

ers, AL-55 non-reheated turbojets for Hindustan

Aeronautics HJT-36 trainers, cruise missile pro-

pulsion systems, marine and industrial turbines.

The company hired much money for the PowerJet

SAM.146 turbofan project undertaken jointly with

Snecma of France. But it ran out of funds in late

2008. The government moved for rescue, provid-

ing money in exchange for a control stake in the

enterprise. The SAM.146 powers Sukhoi Superjet

100 small commercial airliner. If not for the

crisis and inflated banking interest rates, Saturn

would never have gone back under government

control. This view is widely shared in the Russian

aviation community.

Addiction to petrodollars

Russia is as much dependant on export of

fossil fuels and raw materials as the oil-rich Arabs,

Iran, Venezuela etc. Saudi Arabia holds the title of

world’s largest oil exporter. Russia comes second.

But Moscow takes the lead when it comes to a

grand total of raw material export, taking account of

natural gas and minerals. Officially, the share of the

fuel sector in the nation’s economy is given at some

30%. But some experts estimate that the share of

“fossil fuel + raw materials” – based sector of the

Russian economy is as large as 70%.

AIR FLEET · 1.2009 ·( 75 )

A good example of how issues with energy

resources can influence relations between great

powers and their collaborators is the natural

gas conflict between Russia and Ukraine. It took

Moscow and Kiev a whole month to come to terms,

with dead losses exceeding US dollar 5 billion for

Russia alone. Political damage to the relations

between Moscow and Western powers is difficult

to underestimate.

There has been bravado in the Kremlin-

controlled offices and the mass media about “sub-

stantial and growing” achievements of the current

administration in the deed of improving the national

economic system. Reality is darker. The Russian

economy remains strongly dependant on raw mate-

rial exports, which account for over 70% of hard

currency earnings. Volume of domestic manufactur-

ing stays low.

Little is produced in the home territory these

days. In contrast, the Soviet Union manufactured

almost everything locally. Home-made products

provided the lion’s share of the Soviet Union’s own

consumption. In fact, the Soviet people saw very

few foreign-made products in the shops, with the

rear exemptions being Indian tea, Cuban sugar and

Egyptian fruits.

All changed in the 1990s. Collapse of the

communist-style command economy opened doors

wide to foreign manufacturers. The Japanese came

with their cars, the South Koreans with home appli-

ances, Chinese with clothes and the Europeans

with all sorts of machinery (save war machines)

etc. Airbus and Boeing duly obliged Russian carri-

ers seeking modern, fuel-efficient and comfortable

airliners. Their number in the Russian fleet has

exceeded 300 units (including 84 B737s, 16 B757s,

76 A320s, 27 B767s and 12 B747s).

Not surprisingly, local output of commercial

airplanes, ships, machine tools, power units and

all other sorts of high-tech machinery dwarfed. In

some areas, such as super heavy trucks and high-

power gas turbines, Russian production ceased

entirely. This was because the foreign competitors

offered a better combination of price, reliability,

consumer qualities and after-sales support.

Today, it is difficult to name even few high-tech

areas where Russia has been keeping pace with

the US, European and Japanese manufacturers.

Perhaps the only exceptions are certain points in

defense, nuclear power and space. The leading

positions there have been kept with great difficulty.

Quite often, Russia’s leadership in a particular area

is due to the huge Soviet-time investments into

base science, technologies, development centers

and production sites.

Aviation is the area where Russia lost a lot in the

past fifteen years. To such an extent, that in some

key areas the Russian manufacturers needs huge

investments to regain competitive level. For instance,

the United Aircraft Corporation (UAC) needs Rouble

500 billion to attain competitive level with the leading

western manufacturers by 2015. Of that total, Rouble

300 billion is required for development programs,

and 150 billion for technical renovation. As of this

time, government-approved programs allocate less

than 30 million in the period of 2009-2010.

Russia’s first president Boris Yeltsin and his

ministers did not care much for downturn in domes-

tic production of processed goods. And they had

had reasons for such an attitude. During Yeltsin’s

term Russia’s sovereignty was threatened. The

Kremlin inhabitants were preoccupied with fighting

separatists on all sides and doing other things to

keep Russia united. They succeeded, saving the

federal republic from a sort of collapse that hap-

pened to the Soviet Union (and which had sparked

separatist movements in the largest of former

Soviet Republics).

Economy-wise, Russia kept afloat by means

of increasing oil and metal exports. Heavy taxes

on exporters provided a stable flow of petrodollars

into the state treasury. This helped Moscow raise

a stable income in the hard currency. It was big

enough to buy from the West what the nation was

no longer producing at home.

Vladimir Putin continued Yeltsin’s policy and

perfected it. He strengthened state control over the

industry, including large producers of fossil fuels and

raw materials. At the same time, these companies

enjoyed favorable terms as far as business expan-

sion and technical renovation were concerned.

Putin’s administration has tirelessly been sew-

ing the network of oil and gas pipelines. This effort

has not been purely economical; it has carried a

political significance. New pipelines have been laid

down to provide more links between the oil fields in

Siberia and the consumers in Europe and Asia.

The Kremlin has made a few steps aimed at

strengthening Russian presence and influence on

the global market for fossil fuels and the sources of

energy in general. Putin’s administration made great

efforts in Venezuela, Algeria, Libya, Saudi Arabia

and other oil-rich countries of the developing world.

The policy of befriending other oil exporters has

produced mixed results. However, it is certainly an

achievement that, as of today, Moscow’s relations

with the above mentioned countries are best ever

in history.

After fifteen years of “don’t bother me any

longer, my little brothers” policy towards Cuba and

Syria, the Kremlin has recently chosen to resume

financial and military aid to Habana and Damascus.

Conveniently positioned in terms geographical,

Cuba and Syria are meant to serve as bases for

Russian penetration into their neighborhood: the

Spanish-speaking America and the Muslim world

Tu-204 in CUBANA colors

ECONOMY PROBLEMS

AutoVAZ in Togliatti (makes Lada and Kalina series

cars). Also, there is a tiny production of UAZ 4x4

vehicles in Ulianovsk. Moscow-based AZLK ceased

production completely; Izhevsk (Izh) and Nizhny

Novgorod (GAZ) dropped their legacy models in

favor of out-of-production Korean and US designs.

By car numbers, local production accounts

for less than 40% of total sales. By value, it is

less than 20%. In 2005 Russian arms vendor

Rosoboronexport assumed control over AutoVAZ

“so as to save it for the nation”. While the maker

continues afloat, the change of proprietor does not

seem to have brought feasible changes in Lada

competitiveness.

The Russian government has been following

the situation in the automotive industry. But findings

have been rather upsetting. The national legacy cars

sector will invariably continue losing its positions to

foreign manufacturers. Furthermore, the open doors

policy attracted Chinese makers. They seem to have

been using Russia as a convenient testing range for

their cheap products.

The Kremlin tried to amend the situation by

offering global car manufacturers erect their plants

in the Russian territory, promising relaxed taxation

terms. A few Japanese and European makers seized

this opportunity. They opened “screwdriver assem-

bly workshops”, producing copies of “global model”

cars. Although these new workshops have created

some new jobs in Russia, they produced little effect

on the overall situation in the Russian automotive

industry and the inner market. And this could not

have been otherwise, since most of the car com-

ponents are imported (rather than made locally).

When the crisis hit, the Kremlin had a rude awak-

ening. Newly erected “screwdriver” factories did

not decrease the inner market dependence on the

outside world in the given area. With a substantial

drop in car sales in the late 2008, the newly erected

facilities had to stop working. Relatively low-rate,

“screwdriver”-based sort of in-house manufactur-

ing does not justify local production economically

in competition with ready-to-use cars assembled by

bigger plants abroad.

respectively. Besides, Syria and Cuba have some

natural resources that need substantial investment

to exploit. Moscow shows willingness to provide

the requisite funds and technologies in return for

control over those resources.

Despite a heavy pressure from the West insist-

ing on Iran’s isolation, Moscow has been developing

relations with Tehran. This involves direct deliveries

of advanced rocketry (like the Thor-M1 surface-

to-air missiles – 29 launchers were shipped in

2007-2008), and prolongation of license production

rights for Russian designs such as armored vehicles

and assault rifles. The two large oil exporters have

not become close friends, thought. But they have

been improving coordination of their efforts on the

global scene. There is a growing understanding in

both Moscow and Tehran that, through expansion

of mutual trade and joint industrial undertaking,

the two nations may lessen their dependence on

the West. Russian and Iranian manufacturers would

expand outlet for their products, thus enlarging their

anchor markets.

A manufacturing nation

There is a growing understanding in the Russian

society and the corridors of power that the national

economic policy should be based on the notion

that Russia is a manufacturing nation. The country

developed that way since the dawns of time.

In the early Medieval, Slav swords and mails

were most desirable trophies for both European

and Asian invaders, including German knights and

Mongolian cavalrymen. Better quality of Slav-made

arms became apparent in 1240, when the army

of Novgorod (Rus strongest northern city) subse-

quently crashed the elite of the Swedish (1240, the

Battle of the Neva River) and the German knights

Automotive industry

As it was mentioned above, the Russian manu-

facturing industry has been suffering from the

transition from command to open-doors economy.

Heavy and medium machinery and electronics have

been most affected.

Let us take automotive industry for illustration.

Production of Russian legacy cars has halved. The

nation now has only one large maker in the form of

NUMBER OF COMBAT, TRAINING AND TRANSPORT AIRCRAFT IN THE SOVIET INVENTORY

YEAR

1917 October

1924

1928

1930

1933

1941 June

17500 combat

12100 training

NUMBER OF AIRCRAFT

1109

326

1078

1581

3165

AIR FLEET · 1.2009 ·( 75 )

Europeans for permanent residence. This helped

Russia master many of the then-advanced European

technologies. Although in somewhat smaller scale,

this strategy was carried out by Peter’s successors.

As a result, the Imperial Russia kept pace with the

Western Europe on military technologies, including

artillery and armored ship building.

There is a lot of evidence to that. Perhaps

the most illustrative is naval hardware: battle-

ships, armored cruisers and submarines. Warships

of these classes were constructed by domestic

manufacturers to the standards corresponding to

those in the United Kingdom, Germany, France and

the United States. From time to time, the Russian

Imperial Navy purchased new warships in other

countries. The purpose was to assess them and,

if necessary, set up local production. But larger

portion of newly made weapons was developed

domestically. Thus, Russia kept among world’s top

five countries in advanced weaponry making and

armed forces organization.

Born in 1917, the world’s first Republic of the

Workers and Peasants had to fight enemies on

all sides of its immense territory stretching from

The Baltic and Black Seas all the way to Pacific

waters. The new Kremlin inhabitants understood

early in their careers the importance of high-

tech, massive local production of military equip-

ment. Revolutionary leader Vladimir Lenin launched

GOELRO project calling for “total electrofication”

of the country. Thus, Lenin laid foundations of

Russia’s next-generation economy.

In 1929 Josef Stalin launched the great indus-

trialization campaign by adopting the Soviet Union’s

first Five Year Economic Plan. In four years that

followed the Soviet industry assembled 4,289 new

aircraft, and 2952 more in 1933. The new indus-

trial policy focused on erecting thousands of small,

medium and large plants all over the country.

Among others, aviation plants were erected in

Irkutsk, Novosibirsk, Komsomolsk-upon-Amur. To

this day these plants remain Russia’s largest pro-

ducers of fighter aircraft.

In the 1930s, the Soviet Union developed

faster than any other country. In 1939 it became

the world’s third largest economy after the USA

and Germany. Stalin laid foundations of the Soviet

military-industrial complex, which later evolved into

the Russian defense-industrial complex. Whatever

is being said and written today about Lenin and

Stalin, one fact remains undisputed: the communist

leaders succeeded in bringing the Russian industry

into a new quality level, sufficient enough to defend

the USSR from its aggressive neighbors such as

Japan and Germany.

When, in the late 1930s, the world went onto a

massive war, the Soviet Union emerged as a promi-

nent exporter of advanced war machines. Moscow

supplied fighters, bombers, tanks and cannons to

Republican Spain, China, Czechoslovakia etc. The

Soviet-made equipment fared well against that of

the Japanese in China and Mongolia, and against

that of the Germans and Italians in Spain.

In particular, the popular Polikarpov I-16 was

the world’s first fighter to have retractable landing

gears. Equipped by powerful M-25 radial piston

engines (later replaced by more powerful M-62/63 –

these motors were manufactured in Moscow, at the

enterprise now known as MMPP Salut), the I-16

developed top speed of 450km/h, a record for its

time. Strongly-built and agile, I-16 fighters won

numerous air duels with contemporary Japanese,

German and Italian designs.

In summer 1939 the Red Army aviation and

armor units crashed numerically larger Japanese

expedition force in Mongolia. Japanese equipment

was outclassed by the Russian one. Suffering three

times larger losses and complete defeat in the

battlefield, the Japan made decision to maintain

peace with the Soviet Union for the next five years.

“Disproportioned” losses in 1939 made Tokyo

refrain from attacking the Soviet Union even when

its strategic ally Germany had its forces fighting at

Moscow outskirts in winter 1941/1942.

When fascist Germany invaded Soviet Union

in June 1941, VVS RKKA (acronym for the Air

force of the Workers and Peasants Red Army) had

17,500 combat aircraft. This number included 9,288

fighters (of which about two thousand copies of

brand-new MiG, LaGG and Yak types), 5,065 frontal

bombers (including 458 Pe-2 diving bombers),

2,147 heavy bombers, 611 close air support air-

(1242, the Battle of the Chudskoe Lake). These

great victories reflected the fact that Slav-made

armor was stronger and lighter than that of the

opponents.

In 1380 the Moscow-led army of the united

Russian duchies crashed numerically larger force of

the Golden Horde. Again, the Russians demonstrat-

ed better quality of their armor. Besides, for defense

of cities and castles, the Russians used cannons.

Their craftsmen went swiftly from light guns to

very heavy cannons (such as the Tsar Cannon, now

a Kremlin memorial). Artillery was something the

nomad invaders did not have.

The fall of Kazan (a khanate on the Volga River)

to the army of Ivan IV the Terrible in 1556 led to

merging of the Russian and Tatar technologies. This

enabled Russia to capitalize on this unique blend of

European and Asian achievements in arms manu-

facturing techniques. And helped the tsar’s army

withstood heavy pressure on Eastern and Western

directions. In many ways, the Russian victories of

the time were due to the advanced blade and fire

weapons produced in the country.

In 1709 the Battle of Poltava saw Peter the

Great soldiers defeating Europe’s strongest army

of the time, that of Carl XXII of Sweden. This great

victory was preceded by Peter’s sustained efforts

on improving the structure of the Russian army and

industry by means of West-European “technology

insertions”. Since then Peter’s lasting legacy was

mobilizing Russian resources to complete on equal

terms with the West.

Under Peter the Great, Russia became an empire.

St. Petersburg attracted great many talented West

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