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. Last Updated: 07/27/2016

Russia Woos Airbus for Production of A3XX




Western aviation giants have been flirting with their Russian counterparts since the early 1990s when the barriers came down. But, as Brian Humphreys reports, the courtship is getting more intense.


When the Iron Curtain fell, it opened up the Soviet aviation sector to the possibility of deals with its former enemies and competitors. For Western firms, especially European ones who were at a disadvantage in some areas compared with their U.S. counterparts, opportunity beckoned.


Russia's aviation sector promised highly qualified labor that was also extremely cheap by Western standards; they also possessed a flair for unconventional innovation. For the Russians, Western producers offered wealth and sophistication.


It seemed like a match made in heaven, but some nine years of cautious courtship later, each side has had to make do with the equivalent of the occasional date, enlivened by a few chaste kisses.


While there is some cooperation in research and development projects, Russian enterprises that once churned out thousands of planes sit idle on the sidelines of the world's booming aviation industry.


However, just when domestic producers were beginning to lose hope of being rescued from oblivion by their rich but fickle Western suitors, a knight in shining armor has seemingly appeared on the scene in the form of Airbus Industrie's new super-jumbo A3XX airliner.


"This project would allow Russian producers to survive, which at present they are having trouble with," said an analyst familiar with the A3XX project.


The double-decker airliner, designed to replace Boeing's venerable 747 as the world's premier jumbo jet, still exists only in computer-generated publicity photos.


No matter.


After years of indecision regarding the project, Airbus seems to have decided that the time is ripe to push ahead with the A3XX. The European consortium has been doing an excellent job in recent years of taking market share away from the once-invincible Boeing. However, the Americans still reap the advantages of having the only viable large passenger jet f the jumbo.


If Airbus is to take on Boeing in that sector, then it must come up with its own monster to match, or even trump the 747 class.


But they cannot feasibly do so on their own, which has Russian producers convinced that this time, their Western suitors are serious about commitment.


The Russians are therefore angling to get the best deal possible from their new relationship. Major Russian aviation enterprises have formed their own consortium to negotiate deals for major chunks of the anticipated A3XX production program, slated to begin early next century.


The consortium, known as the Aviation Euro-Russian Consortium, or AERC, unites the Russian Economics Ministry, the Aviastar, Hydromash, and Tupolev design and production enterprises, as well as the NIAT and TsAGI research institutes, all of which are hoping for a piece of what promises to be a multi-billion dollar program.


However, analysts say that unrealistic expectations have clouded the future of the anticipated union between Airbus and AERC.


"Russia is almost expecting to be leading the whole program," said Paul Duffy, an independent aviation analyst, "Russians have a great deal of confidence in their own capabilities, but they don't realize that that confidence is not shared outside Russia."


Details of the negotiations between Airbus and AERC are sketchy, with neither side willing to disclose details.


However, the general outlines of the relationship are clear enough.


Production of the A3XX demands new airframe construction technologies in which the Russians have a lead over the European partners in the Airbus consortium. In addition, existing Russian production facilities in Ulyanovsk are better suited to building extremely large aircraft than the ones Airbus has at its disposal in Europe.


But industry observers say that Russia has overplayed its unusually strong hand, demanding a bigger share of production of the A3XX than Airbus is willing to allow it.


"The Russians have a strong hand because Airbus is willing to look for ways to work with them," said Duffy. "However, they are not strong enough financially to force Airbus to do something it doesn't want to do."


For political reasons, Airbus f particularly the French government-owned Aerospatiale partner f wants to produce as much of the plane as possible in Western Europe. Airbus Industrie is in fact an unusual multinational consortium made up of Aerospatiale France (37.9 percent) f which is partially government owned f German DaimlerChrysler (37.9 percent) British Aerospace (20 percent) and Spanish CASA (4.2 percent).


The company's structure makes running its affairs a complicated enough matter without it moving to set up joint projects with outsiders on any basis other than full control.


As a result, if consortium members are willing to invest enough money, they will likely want to build the A3XX with only minimal Russian participation. However, the A3XX remains a financially risky project, which bets Airbus' future on unproven technologies, and a market prognosis tied to further expansion of the "hub-and-spoke" system already familiar to stopover-weary air travellers.


Many industry analysts, as well as arch-rival Boeing, are skeptical, saying that the future of air travel is in smaller airplanes that can fly "point-to-point" between minor destinations.


Given the risks, Airbus has plenty of incentive to cut costs where it can, politics aside.


But even here, there is debate as to how much the Russians will be able to help Airbus on the bottom line.


"The devil is in the details," said Sergei Kolpakov, deputy director of the government-sponsored Interdepartmental Analytical Center in Moscow. "You have to spend money to harmonize certification standards. Maybe there are creditors lurking outside the factory in question waiting to grab your money, or the enterprise hasn't restructured yet and suffers from high overhead costs."


These basic problems have plagued the Russian aviation industry's efforts to tap into international markets for the past decade, and appear to be what is slowing progress on the latest Airbus project in Russia.


"Moving from one [economic] philosophy to another costs money, which the Russians don't have, and which Western producers do not want to spend, so this dance of the mastodons continues," Kolpakov said.


The two sides have made some progress towards ironing out a cooperation agreement in the year since they began negotiations, but the pace has been glacial.


Earlier this month, the two sides completed a "joint-feasibility study" that sought to identify areas where Russia and Airbus could cooperate on the A3XX project.


Airbus officials, however, downplayed its significance f an indication that the two sides negotiating positions are still far apart.


In a press release announcing the completion of the joint feasibility study, Airbus pointed out that it had already subcontracted work to TsAGI, Russia's leading aerodynamic research center and a partner in AERC.


However, contracts with other AERC partners such as Ulyanovsk-based Aviastar, which reportedly wanted to carry out final assembly of the A3XX, but is now willing to settle for a contract to build A3XX fuselage sections, are still in the negotiation phase.


"Russian producers are becoming more realistic in what they are demanding from their Western counterparts," said one analyst familiar with the A3XX project.A bit of realism may be just what the Russian companies represented by AERC need to survive, and maybe even prosper.