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. Last Updated: 07/27/2016

Can Russia's Air Producers Fight Back?

You need only take a look at the rusting, disabled planes on the tarmac at any Russian airport to realize Russia needs a lot of new planes. According to the Defense Ministry's aircraft industry department, Russia needs some 1,600 aircraft to modernize its fleet.


That should be good news for Russia's vast aircraft manufacturing industry. But it isn't.


The reason: Russian carriers just don't want to buy Russian. The bitter proof came last month when Russia's state-owned Aeroflot announced that it intended to buy 10 Boeing 737-400 jets, ignoring a competing bid from Tupolev's Tu-214, built in Tatarstan.


When the snubbed Russian producers raised a chorus of protest at being sold out by the national carrier, Aeroflot head Yevgeny Shaposhnikov pointed straight to the bottom line: Right now, he said, Western jets are more economically viable than their Russian counterparts.


"He's absolutely sincere with what he says," said Boris Rybak, the director of InfoMost, an aviation research and public relations company. "There's absolutely no politics behind that -- it's purely economic."


The political stakes in the debate are indeed high. About 1.8 million Russians -- three times the work force of Boeing, McDonnell Douglas and Airbus combined, according to one industry expert -- depend on the aircraft manufacturing industry for survival.


But from a business point of view it is a question of whether the Russian air industry, nourished and bloated under the Soviet system, is able to produce aircraft that can compete on world markets.


According to industry experts, it is possible: But Russian manufacturers need to cooperate with international companies to produce a viable product, and then they must cooperate amongst themselves to develop a marketing arm that will sell the planes.


The aircraft industry has one big success. Aeroflot's Shaposhnikov has made a commitment to buy 20 long-range Russian-made Ilyushin-96 aircraft, outfitted with U.S.-built Pratt & Whitney engines and equipped with aviation equipment from Rockwell Collins, another U.S. company.


One key aspect of this deal is that the financing problem has been solved by the U.S. government. While few international leasing companies are currently willing to finance purchases of untested Russian planes, the Il-96 will be paid for with U.S. Eximbank loans.


The Il-96 project will be watched closely, according to industry experts. "This will be the model for the next three years," said United City Bank aircraft industry analyst Patricia Isayeva. "It will help Russian manufacturers understand that the situation has changed and that they have to compete with Western producers."


The Il-96 is only the most advanced example of what many see as the solution to Russia's problems -- hybrid projects mixing Western and Russian parts.


Other hybrid projects are also in the works: An Egyptian company, the Kato Group, has placed an order for 30 Tu-204 medium-range jetliners, to be fitted with Rolls Royce engines.


And according to Paul Duffy, a Moscow-based aviation consultant, Russia's Aviastar has fitted one of its Antonov-124s with Rockwell Collins avionics, and is in negotiations with the U.S.-based General Electric to provide the engines. Rybak of InfoMost, which serves clients Airbus Industrie, Rockwell Collins and GE, said GE had provided Aviastar with documentation on its engines, but that there are "no approved production plans" for the project yet.


These three "hybrid" projects have one key similarity: They all use Russian airframes that are hotted up with international additions like engines, avionics and interiors.


"The Russian airframe industry is well up to a high international standard," said Duffy. "But unless they have a package that is suitable for their customers' needs, they'll go out of business because no one will buy them."


Many believe that hybrids based on Russian airframes are the future of the business, but Russia may also be able to save parts of its engine and avionics industries.


The great hope is the PS90, the workhorse of Russia's engine industry.


Designed by Aviadvigatel and built by Perm Motors, two enterprises that are situated next to each other in the Urals city of Perm, the PS90 is the only Russian engine that can hope to compete with a Pratt & Whitney or Rolls Royce engine on a Tu-204 or Il-96.


The PS90, said Duffy, was started in Soviet times when money "was not plentiful, but at least it was there." It is the only new-generation Russian engine to be completed in the last 10 years, he said.


According to Rybak, starting in 1997, the International Civil Aviation Organization will implement strict noise and emissions regulations for aircraft flying to the United States, Europe and major Asian destinations. The only Russian-built engine that meets those standards, he said, is the PS90.


But the PS90 has had its share of problems. Experts throughout the industry say that it has a short "wing-life" and high fuel-consumption compared to its Western counterparts. In a Sept. 12 interview with Izvestia, Aeroflot's Shaposhnikov said that for every one of the 24 PS90 engines currently "under wing" on the company's six Il-96-300 long-haul liners, they have had to keep three sets of spare parts in reserve. He added that Aeroflot would soon go broke if it had to use this "great level of air technology."


Some argue that the only way to bring the PS90 up to scratch is a Western partnership. Pratt & Whitney, a division of United Technologies Corp., has announced plans to invest $125 million into a joint venture with Perm motors to upgrade the PS90 to world standards.


"This would appeal to national interests because it would be manufactured in Russia and it appeals to people more into technology, such as better fuel efficiency, reliability and longevity of the engine, and safety," said Mark Pitts, vice president of Pratt & Whitney's international division.


But no deal has been finalized, and now, according to Duffy, the partnership is "having some problems."


Another approach is simply for the manufacturers of the PS90 to get competitive on their own. One positive sign is that after two months of negotiations, according to Interfax, Aeroflot has struck a deal with Perm Motors that may give the manufacturer an extra push to produce a competitive product. Under the deal, Perm Motors, not Aeroflot, will be charged with maintaining Aeroflot's stockpile of 60 extra PS90 engines. And in the future, Aeroflot will pay not by the engine, but by hour of use.


That may not be a bad stroke of business for Perm Motors. "They've already made very significant improvements in the [PS90] engine," said Peter Smith, an aviation expert and the chief executive of Kasparov Consultancy.


Duffy added that the PS90 that will come out at the end of 1996 and beginning of 1997 will be superior to the engine that has made Aeroflot so wary. It has been "substantially redesigned," he said, and the new models will feature a redesigned core, bearings, and air and fuel intake systems.


"I think PS would be well-advised to rename this engine," Duffy said, "and get away from the bad reputation of the PS90."


The remaining strike against the PS90 is its short lifespan. Although one PS90 will cost about $3.3 million at the beginning of next year, said Duffy, whereas a similar-sized Rolls Royce or Pratt & Whitney may run to $8 million before Russian taxes, the PS90 it has a much shorter wing-life.


According to Smith, the priority in the West is to produce an engine with a long life. It costs more, but that is evened out by the engine's durability. In Russia, he said, engines cost less and have a shorter lifespan. "They're different philosophies," he said. "One doesn't invalidate the other."


In fact, over a ten-year period, there may turn out to be little cost differential between Russian and Western engines, said one air industry expert, who asked not to be identified. "The costs are perhaps even less with a Russian engine."


But with industry sources reporting different figures for the wing life of a PS90 -- from 300 hours to 3,000 hours, compared to over 20,000 for Western engines -- the jury is still out on the Russian engine's economy.


The sector of that lags even further behind is the avionics, or flight instrumentation, industry. Says Duffy: "If the engine industry is having a lot of difficulty, then the avionics industry is having even more difficulty."


According to InfoMost's Rybak, the United States and Australia now require that aircraft flying into their countries be fitted with Traffic Collision Avoidance System, and Europe will require the same in 1998. There are no Russian companies currently producing this technology, which is produced internationally by such firms as Rockwell Collins, Allied Signals, Litton and Honeywell.


According to Rybak, Aeroflot has chosen Rockwell Collins as its primary source of avionics, and Rockwell Collins has recently signed an agreement with Russia's Institute for Aviation Systems and the Cheboksary-based avionics manufacturer Elara to begin assembling the systems in Russia. Initial versions have received U.S. approval, he said, and joint production should start in Russia "very soon."


Whether it uses foreign or homemade avionics and engines, in order to survive, Russia's vast industry of design bureaus and manufacturing facilities must learn to cooperate, not only with foreign partners, but among themselves.


"It's really extraordinary, in this day of consolidation around the world, that Russia is fragmented into nine design bureaus ... and about 20 production factories," said Duffy. "And that's airframes alone.


"If Russia wants to succeed in marketing avionics products, nationally or internationally, they need to join together,"`he said. "Unless the industry can work together and market a family of aircraft -- without having to have each bureau market their own product internationally -- then they can't compete."


According to Rybak, Russian airline marketing is still stuck in the Soviet age, and manufacturers have already missed the boat in keeping up with the likes of Boeing and Airbus. "You ask a design bureau for their client marketing information. What will they give you? Boeing could give you a truckload of information. A Russian bureau couldn't give you a single piece of paper."


Another thing that the Russian industry desperately needs now is a track record. In order to receive financing, underwriters need real-life figures for a proven product. The success of the Il-96 program is "vitally important" for Ilyushin, said Rybak. "In the air-transport world, it's very important to have an operationally proven record."


It was the lack of real-life figures that may have tipped the balance in Boeing's favor against the Tu-214 -- which has yet to even gain a spot on the CIS Interstate Aviation Committee's air register.


For Russian producers, it is a vicious circle: Without financing, they can't sell planes. But without tested planes, they can't hope to get financing.


And so, salvation for Russian manufacturers may lie more in cooperation with foreign companies rather than in the reliance on the charity of patriotic Russian airlines to bail them out.


"An airline should not be interested in technical aspects of an engine or in airplane development," said Duffy. "They should just be interested in making money. That's all."