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The second stage of modernization of the TV3-117-powered Mi-8 was initiated by the Mil Design Bureau's Kazan subsidiary in 1977. The fuselages of two production Mi-8MTs were lengthened by inserting two 0.5 m 'plugs' symmetrically fore and aft of the c.g. The increased-volume cargo cabin could now accommodate 29 troops instead of 24, and 18 stretcher cases instead of 12. There were also changes in avionics and equipment.

The modernized machine received the designation Mi-18, entering flight test in 1979. However, tests of this helicopter in the guise described above did not last long. The fuselage stretch led to an increase in vibration levels. Besides, Afghan war experience demonstrated the need to install additional armour and weapons in the nose; yet, it was impossible to do this while keeping the c.g. within the limits stipulated by the design. Besides, the customer insisted that the new machine should possess not only a more capacious cargo hold, but also improved performance and economic efficiency. To achieve this, it was necessary to considerably improve the helicopter's aerodynamics.

Two helicopter prototypes in Kazan underwent conversion, this time a radical one. The two 0.5-m sections were deleted and replaced by one 1.0 m (3 ft 3 in.) section inserted aft of the c.g. The aft fuselage contour was changed, which helped to reduce the drag created by the fuselage. The external strap-on tanks so characteristic of the Mi-8 were deleted and replaced by fuel tankage under the floor of the cargo hold. These integral tanks formed part of the lower fuselage structure. This feature not only refined the aerodynamics of the Mi-18 but also increased the stiffness of the fuselage; vibration characteristics were also significantly improved. The fixed undercarriage was replaced by a retractable one similar to that of the Mi-24, except that the main units retracted into small side pylons, a kind of 'stub wings', as on the Mi-14.

Generally the external contours of the 'Mi-18 were more refined than those of the original fixed-gear Mi-18 prototypes. To ease the embarkation and disembarkation of troops, the cargo hold was provided with an additional sliding door on the starboard side. The electrical equipment was upgraded. A further improvement of the performance and operational characteristics of the helicopter was expected after the proposed installation of new glass fiber main rotor blades, engines with better high-altitude performance and a weather/navigation radar. Test pilots N. A. Zhen and V. T. Dvoryankin from Kazan plant took the modified Mi-18 into the air on 28th April 1984.

Manufacturer's tests showed a noticeably improved performance - the forward flight speed increased by 11-12%. However, the projected upgrade of the Mi-8 fleet to Mi-18 standard never took place. The period of perestroika (restructuring) set in, the Soviet Government demanded that radically new types of hardware be introduced instead of upgrading existing ones. It was decided that it would be more expedient to support the development of the prospective Mi-38. The Mi-18 helicopter was never presented for State trials. Still, many of the new elements of airframe construction and equipment that had been tested on the Mi-18 were subsequently introduced on production Mi-8MTs (Mi-17s).

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