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. Last Updated: 07/27/2016

Report: State to Form Aviation Holding

While the government has yet to announce its plan to consolidate the aviation industry, a copy of the Science and Technology Ministry plan under consideration, obtained by Vedomosti, calls for the establishment of a holding company for state enterprises that will enjoy the full backing of the state.

The plan shows that the Science and Technology Ministry is highly skeptical of the prospects for civilian aircraft manufacturers. The internal demand for such production over the next 10 years will remain low, the document says.

But the situation for aircraft makers in the military-industrial complex is better. It has a high export potential. The Science and Technology Ministry estimates potential exports at $2 billion to $2.5 billion a year over the next decade. Five enterprises producing military aircraft can produce 50 to 60 airplanes a year for export and another 10 to 20 for the Defense Ministry. But it will be impossible to entirely realize the production capacity of the factories, some of which can make 80 airplanes a year.

The ministry concludes there are too many enterprises in the industry. In order to reduce their number, a plan was proposed. The first stage, to be implemented from 2001 to 2002, proposes finishing the formation of already existing associations and holdings. In the second stage, beginning in 2002, the first steps will be taken to unify the most promising aircraft manufacturers into a holding to be called Aist.

The plan proposes to build the new mega-holding on the base of Tupolev, which comprises the Tupolev construction bureau ANTK and the Avistar factory in Ulyanovsk, the intergovernmental aviation corporation Ilyushin, the construction complexes Mig and Sukhoi, and the Komsomolsk-Amur aviation production association, which makes the Su-27 and is now part of the Sukhoi complex. All of these enterprises are controlled by the state.

"It is proposed to concentrate the economic and political resources of the government on a limited number of priority system-forming projects for the purpose of creating the final project," the plan says. "The state will not undermine the private initiative of the creation of new aviation technology in other areas but will not offer the use of its services for its support."

Not only is state investment being discussed, the possible size of which was not specified in the document, but also military orders and the right to independently export production. If the plan is carried out, private aircraft manufacturing enterprises could lose their sales outlets.

Certain private enterprises are performing well, such as the Irkutsk aviation production association, in which the state holds a 14 percent stake. The association is part of the Sukhoi aviation military-industrial complex. A contract signed at the end of last year for the licensed production of 140 Su-30MKIs in India gave the Irkutsk factory an order for 15 years and guaranteed financing of more than $3 billion.

But when the contract expires, it could become evident that private enterprises will find foreign market already closed. A high-ranking representative of the Irkutsk factory criticized the plans. "The tendency of the concentration of aviation production and the dominant role of the government is understandable," he said. The government today simply does not have enough money or opportunities to finance large-scale programs, for the sake of which such an association would be created, said the representative of the Irkutsk factory.

A representative of another large Russian military-industrial company said he is simply afraid to look at the plan. He is waiting to see what President Vladimir Putin says when the program is presented before the Duma. "The president has still not expressed his point of view on whether it is necessary to nationalize defense [enterprises]," said the source.

"There is a choice; does the government need to stimulate the creation of military enterprises that could make a profit producing weapons, or does the state need enterprises that are obviously making losses but are able to produce output in the amounts required. That would indicate a return to Gosplan."