Civil Aviation Production Prospects

At present, American Boeing and French Airbus occupy a leading position in the global civil aviation market; followed by the Brazilian Embraer and the Canadian Bombardier. At the same time, the Embraer business associated with the release of civilian aircraft absorbs Boeing, and the production of CSeries aircraft from Bombardier comes under the control of Airbus. It is Embraer and Bombardier that are considered to be world leaders in the production of short-haul and medium-haul aircraft, through which Boeing and Airbus entered the market, and it is with them, as well as Chinese aircraft, that the Russian manufacturers Sukhoi Superjet 100 and Irkut MC-21 have to compete with.

The demand for aircraft in Russia is driven by the growing air traffic needs. Despite the economic downturn of 2008-2009, the average growth rate of passenger traffic between 2001 and 2012 amounted to 11.4% annually. The cargo traffic for the same period was 6.1% annually. International air traffic is the most dynamic segment of this market. The major share of domestic air traffic belonged to long-distance flights, primarily through Moscow.

Generous state funding protected the Russian aerospace industry from the 2008-2009 economic downturn. According to the Ministry of Industry and Trade, in the first seven months of 2009, commercial aircraft output declined by just 2.4%. Such decline was explained by the slippage of delivery dates and delays with the certification of new aircraft as well as by the increase of production expenses for assimilation of new technologies.

Russian manufacturers built 24 civil aircraft in January-July 2009, including 7 commercial airliners, says the ministry’s report. These included two Tupolev Tu-204 for Russia’s Red Wings Airlines, two Tu-214SP single-aisle airliners and one Ilyushin Il-96-300 widebody for the Russian presidential air detachment and two Beriev Be-200 amphibians.

The local and regional air traffic had less than 13% of the market, but it played an important role in Russia’s air transportation. In 2012, the Russian Government intensified efforts to support regional aviation in order to connect the outlaying regions and satisfy unmet regional air traffic needs. Under an innovative scenario of Russian economy’s development, the air traffic is forecasted to grow at 6.3-7.8% annually within the next 20 years.

The share of Western made aircraft in Russian airlines’ fleets amount to 63%. As of January 2013, the active commercial fleet of Russian operators totals 2,745 aircraft units, including 645 mainstream aircraft, 294 regional passenger aircraft, 137 cargo aircraft and 1,111 helicopters. Between 2008 and 2012, Russian airlines’ fleets received 540 Western manufactured passenger aircraft and 50 new Russian aircraft. During the same period, 14 Western cargo aircraft and 8 Russian made aircraft were delivered. In 2012, the Russian airlines’ fleet received 133 passenger aircraft, including 114 Western aircraft, 15 new Russian aircraft and 4 previous generation Russian aircraft.

Due to the large number of aging Soviet aircraft in Russian fleets, fleet renewal is expected to continue in the near future. By 2031, it is forecasted that Russian airlines will require 1,540-1,870 of long-haul aircraft with a significant share of narrow-body aircraft with varying seating capacity, and 420-500 regional passenger aircraft. The market need for cargo aircraft is much less significant and is not expected to exceed 260 aircraft.

The Russian airlines would need more than 900 passenger aircraft over the 20 years 2008-2018 in response to the strong growth in this market, according to the March 2008 Airbus Global Market Forecast (GMF). The Russian passenger aircraft fleet of 100 seats or more was expected to grow strongly from 528 aircraft in service in 2006 to nearly 950 by 2026. Over the next 20 years [2007-2027], Russia would require more than 900 aircraft to meet demand for aircraft replacement as well as fleet growth. This will represent a value at current list price of US$ 79 billion. These additional aircraft would include nearly 800 short haul - single-aisle aircraft which are prominent in the region's fleet and some 120 medium to long-range wide-body aircraft to satisfy international travel strong growth.

The "tyranny of the producers" persists in the Russian civil aviation industry. The structure of the sector remains remarkably unchanged from that of the Soviet Union. It is plagued by massive factory over-capacity, an extensive network of design bureaus skilled in starting new products and producing a few prototypes, and a systemic inability to pick winners and losers. As of 2008 there were at least ten separate production facilities manufacturing aircraft with a passenger capacity of more than 100 seats, and another five factories producing smaller civil aviation passenger aircraft. By rough count, nearly half the civil aircraft production lines in the world are in Russia. Overall, each of these factories was building aircraft at an average rate of one per year. That is, these town forming enterprises were producing the minimum number of aircraft to make a claim for their continued existence, but few were doing more in the aviation sector than preserving memories.

The government has sought to reorganize and revitalize Russia's aircraft industry in the context of a larger restructuring plan for Russia's defense industry. Specifically, the government decided to implement a large-scale consolidation of the aircraft industry through mergers and privatizations. Lack of sufficient demand from an undercapitalized domestic airline industry and the relatively small export market for Russian aircraft currently precludes improvement of Russian production lines and prevents the Russian LCA industry from achieving economies of scale.

Russia had not given up on independently establishing a viable domestic prime-manufacturing sector again. The government of Russia announced plans in February 2004 to consolidate the existing Russian major aerospace companies (Sukhoi, MIG Irkut, Ilyushin, and Tupolev) into a consortium. In February 2006, President Putin signed a decree calling for an action plan to be created for this consortium, called United Aircraft-Building Company [OAK]. This was the most recent of a long series of plans to revitalize the Russian aerospace manufacturing industry and recapture its position as a global prime producer of large civil aircraft and engines. Without recovery of the traditional customers of Russian aircraft manufacturers or the manufacturers themselves, however, it is difficult to predict when this might actually happen.

On 24 June 2007 it was reported that Russia will resume serial aircraft production within the next four to five years. It will produce over 320 civil aircraft of different classes in 2008-2012. The data was cited in a letter Deputy Industry and Energy Minister Andrei Dementyev submitted to parliament. There are plans to produce 15 long-haul Il-96 planes, 84 Tu-204/214, 236 regional Sukhoi Superjet-100 and Tu-334 aircraft, as well as 96 An-148. Taking into account export plans, Russia's civil aircraft fleet will be replenished with over 430 planes.

Russian wide-body airliners remain the province of Ilyushin, which continues to build a few Il-96-300 each year. Tupolev may become the leading manufacturer of the next-generation wide-body airliners, which necessity was voiced by Vladimir Putin during his visit to the Gromov Flight Research Institute on 20 February 2008. The new generation of Russian Large Civil Aircraft basically consists of one aircraft from each manufacturer -- the Il-96 and the Tu-204. Ilyushin officials stated in the late 1990s that they were not interested in producing LCA with fewer than 200 seats, and do not want to design a plane larger than the Il-96, offered at a maximum of 375 seats. This business strategy would likely put Ilyushin at a competitive disadvantage vis-à-vis Boeing and Airbus which offer families of aircraft spanning a broad range of seating capacities.

Russian medium-range airliners have been divided between aircraft-building majors Irkut and Sukhoi. They will jointly provide the United Aircraft Building Corporation (UABC) with advanced airliners of the most popular size - those with 96, 110, 130, 150, 180 and 210 seats representing all types of the so-called narrow-body aircraft. At present, the Airbus A320 and Boeing 737 are dominating this market. Irkut will take on the MS-21 family with over 150 seats. And Sukhoi, in addition to the first-generation 96-seated Sukhoi Superjet 100 (SSJ-100), will design two second-generation aircraft - the SSJ-110 and SSJ-130 carrying 110 and 130 passengers, respectively. This is in return for Irkut's dropping the 130-seat MS-21-100 and its raising the capacity of the MS-21-300 medium version up to 180 passengers. Sukhoi will provide the MS-21 an all-composite wing basing on its SSJ-110/130 solutions.

Russian regional jet programs include three competing projects entering production [while a fourth, the Yak-42, is claimed to remain in production]. There is a significant spread in the parameters of passenger capacity and flying range, which indicated the absence of a study of market niche and the absence of united technical requirements for the regional aircraft. This reflects the absence of elementary experience in Russian KB in conducting of adequate marketing studies. Due to their similar performance characteristics, the SSJ has been projected as a potential rival to the AN-148 and 100-seat to 126-seat Tu-334. These three domestic Russian projects are practically identical with respect to their technical characteristics, which are approximately 20% worse than the foreign competition. However, in the view of some, they cannot be directly compared as they are in different price categories. The catalog price of the basic SSJ-100B model is $27.2 mn, whereas the AN-148 costs approximately $18-20 mn. OAK's strategy is to position the AN-148 for the domestic market, and the SSJ for foreign markets.

The SSJ aircraft engines are positioned only 47 cm over the ground. So taking off and landing would be possible only on ideally even surface which is not a characteristic feature of Russian airports. The Superjet 100 and EMB-190 have a high risk of the damage of engines by foreign objects on the badly prepared airfields and require thorough preparation and cleaning of airfields.

Until recently, the Sukhoi-designed Superjet 100 had been the main project of this type in Russia. The Tu-334-family aircraft, however, have received state support again for two reasons. First, many experts repeatedly said planes of this type were much better adapted for small airports in Siberia and the Far East lacking advanced infrastructure and kept in rather poor condition. Second, bureaucrats seem to have realized the simple fact that the Russian market should be filled with Russian-made planes long before such projects as the MS-21 close- and medium-range aircraft are implemented. Otherwise, by the time the MS-21 is ready, Airbus and Boeing aircraft will have firmly taken its place.

The small regional jet market seems inactive as of 2008. Initial Sukhoi Superjet plans for 60-seat and 75-seat versions failed to interest the market. The Tu-324 airplane was designed by the Tupolev OKB to be a domestic regional airplane with a capacity of up to 60 seats to permit replacing the obsolescent and physically aging Tu-134 and Yak-40 airplanes now being used.

Russian small turbo-prop airliners include three new aircraft types manufactured in Russia and the CIS that have begun operating with Russian airlines since the year 2000: the 64-seat Ilyushin Il-114 aircraft manufactured by the Tashkent TAPO plant; the first Russian-Ukrainian-built aircraft, the 52-seat Antonov An-140; and the 27-seat Antonov An-38. From 1994 through 2007 fewer than 10 An-38s had been built. During the MAKS-2007 air show, Novosibirsk NAPO plant (the manufacturer of this aircraft) and Antonov Corporation agreed to continue the An-38's development, but it is not yet clear how it will facilitate the actual An-38 production.

Russian Prime Minister Dmitry Medvedev called on industry and government to consider developing a new regional transport aircraft, either alone or with foreign partners. "We need to think about creating a regional aircraft in Russia - either ourselves, which in my view is unlikely, though if you surprised me, I'd be glad to hear it - or with a world-class foreign manufacturer," Medvedev said at an August 2012 meeting to discuss the revival of local air transport services. The country relies on hundreds of aging Antonov An-2 biplanes which can carry 12 passengers, and Mi-8 helicopters. Western manufacturers, including Canada's Viking Air and Czech plane maker Evektor, have been in talks with Russian partners over possible license manufacturing of their regional aircraft in Russia, but no deal had yet been concluded.

Rostec and Canadian aerospace company Bombardier announced in late August 2013 they had signed a letter of intent for the sale of 50 Q400 NextGen turboprop airliners for use by Russian regional airlines. The two companies also signed a memorandum of understanding for establishing a final assembly line for the Q400 NextGen in the Ulyanovsk region with a capacity of 24 aircraft a year. If a definitive agreement is reached, a firm-order contract for 100 Q400 NextGen aircraft would be valued at around $3.39 billion. Rostec has yet to decide which manufacturer's aircraft – Bombardier, or its European rival ATR – will be assembled there, the region’s Strategic Development and Innovation Minister Alexander Smekalin said, adding he hoped first aircraft were to be built within the next two or three years.

Another manufacturer, Russia’s Vityaz Avia, also planneds to build aircraft in Ulyanovsk’s special economic zone starting next year. Vityaz, in partnership with Canada’s Viking Air, wanted to build up to 24 DHC Twin Otter 400 19-seat turboprops for use by local Russian air transport operators, Vedomosti reported in August 2013.

In late June 2013, the American defense contractor AAR Corp. announced it had signed a letter of intent for a tentative two-phase commercial aviation project that would, if successful, include an aircraft parts distribution and logistics center and a commercial aircraft maintenance facility to be based in the southern Volga city. AAR’s plans were for the first phase to open in mid-2014 and the second in 2015.

A Bright Future?

Official estimates projected that the future will be remarkably different from the recent past. During the later years of the Cold War the Soviet civil aviation industry produced well over 100 aircraft each year. With the end of the Cold War, production rates fell to about a dozen aircraft each year. By 2007 Russian government projections suggested that production levels would exceed 100 aircraft each year by the end of the decade. And unofficial projections held out the prospect of production of nearly a thousand aircraft in the year 2020. These would seem optimistic, if for no other reason than uncertainty as to the availability of a skilled workforce to man the production lines that have been so idle for so long. The Russian civil aviation industry collapsed within a couple of years of the collapse of the Soviet Union, but it cannot be rebuilt so quickly.

The stage of stabilization engaged roughly the first five years of the new century. It was at the same time possible to more or less stabilize the state of affairs at many plants, to restructure their debts against the budget, to considerably improve their financial position and, most important, to stabilize personnel. Now the major problem is not in the absence orders, but in the quantity of people who must be drawn to the plants, for the human resource do not make it possible to simultaneously develop all programs in which they are occupied. At VASO (Voronezh joint-stock aircraft-construction company) the number of production workers as of 2007 was 2 thousand. That number would need to grow by a minimum of 4.5 thousand, to 6 thousand, for production of the Il-96, the starting of assembling An-148, the delivery of components for SSJ and Il-476. The analogous situation at the Ul'yanovsk plant, the privately held company Aviastar SP, the producer of passenger Tu-204, transport Il-476. It also needs to collect about 2.5 thousand workers. Earlier this was perhaps relatively easily, but now this is sufficiently serious problem.

In 2013, Russia built a total of 132 aircraft, including 100 military and 32 civilian planes. Russian aircraft makers are expected to manufacture about 150 military and civilian aircraft in 2014, a government official said 13 February 2014. “The plan for 2014 stipulates production of over 100 combat aircraft and 46 civilian planes, including 40 Sukhoi Superjets,” said Andrei Boginsky, who heads the aviation construction department at the Ministry of Industry and Trade. Boginsky said that Russia currently made two Superjet 100 planes every month. “We have to boost production to three Superjets per month in order to meet our delivery obligations,” he said.