Civil Aviation
In the mid-1980s, the Soviet Union began to shift its traditional military focus to developing new civil aircraft. These new civil programs were intended to upgrade the domestic civil air transportation network, generate hard currency through products for export, and convert defense production facilities and employment to civil ventures. However, after the dissolution of the Soviet Union, the Russian civil aircraft industry nearly collapsed.
Before 1992, the military and civil aviation industries in the former Soviet Union were wholly state owned and strictly regulated. Design bureaus were separate entities from serial production facilities where aircraft were mass produced. The government decided which LCA designs would go forward, provided funding for the entire development and production process, and dictated how many aircraft would be produced annually. Moreover, major components, such as engines, were selected by design bureaus without competitive bidding by suppliers. This system allowed for overcapacity in the manufacturing industry, did not provide incentives for technological and production process improvement, and did not foster design improvements, leaving the industry ill prepared to function in a market-oriented manner.
The Russian large civil aircraft (LCA) industry devoted all available resources during the 1990s to develop a new generation of civil aircraft capable of competing on the global market with aircraft from The Boeing Co. (Boeing) and Airbus Industrie, G.I.E. (Airbus). Due to a number of factors, the most critical being a lack of capital and a corporate structure that is not market oriented, Russian producers are not expected to be in a position to secure global market share with their new generation aircraft in the next 10 years.
Following the collapse of the Soviet Union, air travel decreased sharply in the 1990s; in 2001 passenger kilometers were less than 40 percent of the 1990 total. Passenger numbers recovered gradually in the early 2000s, increasing by 4 percent between 2004 and 2005 to about 35 million. Since the early 1990's civil aircraft in Russia remained in deep crisis, primarily due to a significant reduction in the level of air travel and, accordingly, ordering airlines to reduce aircraft. According to the Ministry of Russian Federation, in Russia some 35 million people were flying each year, while in the Soviet Union aircraft were used about 100 million.
By 2006 most domestically produced airliners had been in service for more than 20 years, as the aviation industry's output remained very low and funds for replacement were lacking. Safety concerns about the aging fleet accelerated in 2005-6 as crashes increased significantly. Although plans call for streamlining the Russian airline industry under a single United Aircraft Building Corporation, foreign builders Airbus and Boeing are expected to provide most of Russia's new airliners in the ensuing decade, further damaging the domestic industry.
From 1992 to 2007, the number of Russian airports decreased from 1,302 to 351, primarily due to closure of small regional facilities. In 2006 Russia had 616 airports with paved runways, 51 of which had runways longer than 3,000 meters and 198, runways between 2,500 and 3,000 meters. Major international airports are located in Moscow, St. Petersburg, Rostov, Yekaterinburg, Novorossiysk, Krasnoyarsk, Irkutsk, Khabarovsk, and Magadan. In 2006 some 52 heliports also were in operation.
Despite an aging civil aviation fleet and use of outmoded avionics and engines, replenishment of the Russian fleet had not proceeded in the first fifteen years following the collapse of the Soviet Union. One of the few advantages of failing passenger traffic was that the service lives of aircraft in current service lasted longer. Thus, aircraft that could have been expected to run out of hours in the 1990s remained in service years longer. Even though the operating costs of a Russian airplane may be substantially more than those of a roughly similar capacity Western aircraft, the Russian aircraft came free of capital or leasing charges. Eventually, however, new planes were purchased, and these purchases were largely of Western aircraft.
Despite a tremendous need to renew the Russian civil aviation fleet, deliveries by Russian manufacturers plunged, due in large part to the absence of financing and leasing mechanisms for the purchase of Russian aircraft. Whereas formerly the Russian industry was guaranteed a certain level of revenue from sales to the government-controlled Aeroflot, Russian aircraft must now compete with Western aircraft. Western aircraft are offered with more flexible financing and leasing options, whereas Russian manufacturers require up-front payment in full for their aircraft. To support leasing of Russian-manufactured aircraft, the Russian Government in August 2001 concluded deals with Ilyushin Finance and Finance Leasing Company (FLC). Under these deals the Russian Government took a controlling interest in each company's aircraft leasing operations in exchange for an $80 million infusion of government money in Ilyushin's IL-96 project and $25 million in FLC's TU-214 project. In December 2003, the Russian government increased its ownership stake in each of the companies in the amount of almost 30 million dollars for Ilyushin Finance and almost 13 million dollars for FLC. By 2007 company Ilyushin Finance Co. (IFC) was a virtually monopoly on the market leasing deliveries of Russian aircraft. According to preliminary estimates, this year's assets amounted to about $ 1.12 billion.
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