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. Last Updated: 07/27/2016

Malaysia's Air Force Buys 18 Su-30 Jets

APDefense Minister Igor Ivanov inspecting the honor guard Monday at the Defense Ministry in Kuala Lumpur.
In what may well be the defense event of the year, Russia on Monday secured a $900 million contract to deliver 18 Su-30MKM fighter jets to Malaysia.

"This contract is very significant for Russia. We are gaining a foothold in this market," Defense Minister Sergei Ivanov told reporters in Kuala Lumpur on Monday.

"Russia and Malaysia are building longer term military and technical cooperation because the contract envisions the technical servicing of the jets as well as their further upgrade," Ivanov was quoted by Interfax as saying.

Malaysian Defense Minister Najib Abdul Razak said the first planes will be delivered in mid-2006.

"This is a result of our modernization program," he was quoted by Reuters as saying. "There is a need for combat aircraft, especially multi-role combat aircraft."

The jets will be built by Irkut Corp. at its plant in Irkutsk. The plant is now fulfilling a $1.8 billion contract signed in 1996 to deliver Su-30 fighters to India.

When Malaysia started negotiations for the jets before the 1997 Asian financial crisis, it also was looking to buy up to 18 Boeing F/A-18E/F Super Hornet fighters. But that deal is now uncertain due to Malaysia's opposition to the U.S.-led war in Iraq, Malaysian industry sources told The Associated Press.

Najib refused to comment on the Super Hornets deal Monday.

The Malaysian defense minister said Kuala Lumpur may pay for the Russian jets in part with commodities such as palm oil.

A source familiar with negotiations said Monday that more than half of the $900 million price tag will be paid in cash.

Monday's agreement echoes a $600 million deal Malaysia clinched in 1994 for 18 MiG-29 fighters. The jets were paid for in part with palm oil, said Konstantin Makiyenko, the deputy head of the Center for Analysis of Strategies and Technologies think tank.

"It was a symbolic deal for Russia at the time, and hopefully this one will be as well," Makiyenko said.

Arms exports plunged to a post-Soviet low of $1.7 billion in 1994, but the sale to Malaysia opened the door to more orders the following year, Makiyenko said.

Last year, Russia hit a post-Soviet high of $4.8 billion in arms exports.

"So far, the Malaysian deal marks the defense event of this year," Makiyenko said.

After Monday's deal is fulfilled, Malaysia's air force will consist mostly of Russian aircraft, he said.

In the past two years, Kuala Lumpur has purchased other defense equipment from Russia such as Metis anti-tank missiles and shoulder-fired Igla anti-aircraft missile systems, he said.

The predominately Muslim country is also thought to be looking at Buk-M1 short-range air defense systems and Mi-17 helicopters.

Neighboring Indonesia signed a contract last month for four Su-30s and options for eight more.

Malaysia has asked the Russian avionics on the 18 new jets be replaced with French-made systems, Reuters quoted defense sources as saying. The Russian avionics contain some Israeli-made components.

Irkut first vice president Sergei Tsivilyov refused to comment on the avionics package Monday. Irkut was formerly known by the acronym IAPO

Tsivilyov said the Su-30MKMs will be primarily based on the Su-30MKI version that Irkut is building for India.

"The deal will be a serious step toward expanding our market presence," he said in a telephone interview.

The contract also will help fill a gap left when Irkut completes India's order next year. "It will support us a lot in the midterm," Tsivilyov said.

Without the Malaysian contract, Irkut already had an exports portfolio worth more than $3 billion.

But with state arms procurement expected to almost double to 200 billion rubles ($6.5 billion) next year, the company also is positioning itself to handle upgrades for the Russian air force, Tsivilyov said. In addition, Irkut is diversifying into civilian aviation, assembling the Be-200 amphibious aircraft and developing the multipurpose MTA transport plane with India.

To finance these programs, Irkut plans to become the first Russian defense company to float its shares on international markets next year. Irkut is planning to raise $100 million with an initial public offering in London. It also wants to issue a $100 million eurobond in the second half of 2004.

To this end, PricewaterhouseCoopers has audited the company's finances to U.S. generally accepted accounting standards for 2000 and 2001.

Majority-owned by its management, Irkut is one of a handful of major defense enterprises in which the government, with 14.7 percent, does not own a blocking stake.