Russia & CIS Observer. Special focus on Dubai Airshow 2013

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â„– 3 (38) november 2013

special focus on dubai airshow 2013

Russia & CIS Observer № 3 (38) n ovem b er 2013

from the publisher of

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Russia/CIS Observer is produced by:

•AEROSPACE INDUSTRY

AIR TRANSPORT

New challenges

Aeroflot launches

Publisher Evgeny Semenov

for Sukhoi Superjet 100 ........................2

a low cost subsidiary ..........................13

Editior"in"Chief Maxim Pyadushkin

Busy future for Ulyanovsk facility ........4

Russian passenger air traffic

Art Director Andrey Khorkov Commercial Director Sergey Belyaev Advertising Manager Oleg Abdulov Cover Photos Leonid Faerberg, Fyodor Borisov, Novosti Kosmonavtiki Magazine All rights reserved.

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Antonov jet enters foreign markets........6 MC-21 airliner readying for series production ..........................................8 Rostec eyeing the regional aviation market ................................................9 •DEFENSE Russian defense budget set to grow ....10

continues to grow ..............................14 •BUSINESS AVIATION Controversial stability on the Russian bizav market..........................16 SPACE BUSINESS

Sukhoi fighters will remain the

The future of Russia’s launch

backbone of the Russian Air Force......11

vehicle fleet ........................................18

India to receive ex-Russian carrier

Nuclear power

in November ......................................12

for space applications ........................20

© № 3 (38), November 2014 Tel./Fax: +7 (495) 933 0297 Correspondence: P.O. Box 127, Moscow, 119048, Russia

Visit our website at www.ato.ru/rco RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

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New challenges for Sukhoi Superjet 100 The Russian regional airliner program is ramping up production in a bid to attain financial stability

Maxim Pyadushkin

T

he end of this summer and all of the fall were quite intense for the Sukhoi Superjet 100 program. The new Russian regional airliner’s manufacturer Sukhoi Civil Aircraft (SCAC) saw its backlog grow impressively, and received positive news about the initial operation results of its brainchild in Latin America and Asia.

The total number of SSJ100 orders reached 200 at the MAKS 2013 aerospace exhibition in Zhukovsky, outside Moscow, in August. On the first day of the show, Ilyushin Finance Co. (IFC) firmed up 20 preliminary orders. Five of the aircraft, in the SSJ100LR longrange variant, are to be delivered to an as-yet undisclosed customer from late 2015. Thinner seats will allow for extending these airliners’ capacity to 103 passengers. The rest of the IFC aircraft will come in the baseline variant; these will be delivered to customers in 2

Southeast Asia and the Middle East in 2015.

Another Russian lessor, Sberbank Leasing, used MAKS to sign a $700 million preliminary agreement with SCAC for the delivery of 20 aircraft.

The parties also announced during the show that they will set up a joint venture to promote SSJ 100 sales in Russia and abroad.

Another customer at MAKS was AviaAm Leasing, a subsidiary of Lithuania-based Avia Solutions Group, which signed an MoU for the purchase of five aircraft. The deal is valued at $100 million, with deliveries expected to start in 2014. According to SCAC President Andrey Kalinovsky, Avia Solutions Group’s other subsidiary, FL Technics, has already set up a spare parts warehouse in Malaysia to support SSJ100 operations in Indonesia and Laos.

In a yet another development, UTair Aviation, Russia’s third largest airline for passengers carried, placed an order

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

for six SSJ100s through the VEB Leasing company with deliveries from 2014. The deal is part of an MoU for 24 aircraft signed by UTair and SCAC in November 2010.

Finally, Russia’s arms trade monopoly Rosoboronexport became the launch customer for the VIP-configured SSJ100. The aircraft is based on the SSJ100 Basic variant and features a luxurious cabin seating up to 19 passengers. Rosoboronexport’s single aircraft on order should be delivered later this autumn. SCAC is also working on a more specialized Sukhoi Business Jet variant, which is expected to be ready for market entry in 2015.

In August this year, the Aviation Register arm of CIS-wide Interstate Aviation Committee certified the aircraft’s SSJ100LR long-range version.

This variant has a range of 4,578 km, against the baseline version’s 3,048 km; its MTOW has been increased to 49.5 tons, and it has a reinforced wing. The LR version is powered by a pair of NPO

SJI

AEROSPACE INDUSTRY

AEROSPACE INDUSTRY

sity routes as well as some short-haul international ones.

Interjet’s SSJ100s have 99.03% despatch reliability. Oscar Ruiz, Interjet Technical Director, says any technical issues are rectified during the nighttime, so the aircraft is serviceable again the next morning. The airline makes use of parts depots in Miami and Frankfurt. The former ships on the next day, the latter takes two days to deliver.

Critical parts and no-go items are stored in Mexico.

SCAC and SJI view Interjet’s operating results as an essential component of their drive to promote the SSJ100 on the global market. SCAC is planning to have built 26 of the type in 2013.

President Andrey Kalinovsky has predicted earlier that the production cycle per airframe would be brought down to 10 days by year-end, translating to an output capacity of around three air-

factors, including insufficient development of sales financing mechanisms, as well as losses incurred from sales to the launch customers,” the company notes.

SCAC’s RAS net loss for the first three quarters of the year amounted to 7.285 billion rubles, or 2.8 times more than the same period in 2012. However, UAC says the company’s financial situation is within the approved business plan, which calls for the first operating revenue to be received in 2014, and for the business to break even in 2018.

As a part of the rescue plan, Russian state-owned Vnesheconombank will become a participant in the SSJ100 program through a stake in SCAC parent company Sukhoi. The decision was approved by the bank’s supervisory board in September. “We will become [a shareholder] to the extent and on the conditions that will not damage the fi-

Gazpromavia became the launch customer for the SSJ100 long-range version

Marina Lystseva

Saturn-Snecma SaM146 1S18 engines, which offer 5% higher take-off thrust (16,100 lbf) compared with the standard SaM-146 design. Gazpromavia, a subsidiary of Russian gas giant Gazprom, became the launch customer for the long-range version; its first aircraft carry 90 passengers in an all-economy configuration. The first example has already been delivered; the other nine aircraft on order will follow by 2015.

Other SSJ100 deliveries in 2013 included two to Aeroflot, one to Yakutia, and one to Moskovia – all three are Russian carriers. Foreign deliveries, one each, went to Laos’ Lao Central and Indonesia’s Sky Aviation. The type also began revenue flights with Mexican carrier Interjet, the first SSJ100 customer in the Americas.

Interjet’s first aircraft was delivered

by SuperJet International (SJI), Sukhoi’s JV with Alenia Aermacchi, at the Paris Air Show 2013. The second one followed in early August, and the third made it to Mexico under its own steam in November. In all, Interjet expects to receive eight of the type by the end of the year, out of the 20 on order.

The remaining 12 airframes should be delivered during 2014. The carrier also has an option for 10 more.

The first two Interjet SSJ100s entered service in mid-September. By the end of October they had performed over 580 revenue flights for a total of around 600 hours, or 9.74 hours per day on average.

Interjet’s SSJ100s fly from Mexico City to Torreon, Aguascalientes, Campeche, Minatitlan, Zacatecas, and Mazatlan. The airline estimates the average sector length at about one hour’s flight time, and says the fleet’s maximum combined time in the air exceeds 11 hours per day.

“We are very proud of the new SSJ100: it is currently the only regional aircraft with a five-abreast configuration, enabling mainline comfort with reduced operating costs and the flexibility of a regional jet to be operated in small airports,” says Interjet CEO Jose Luis Garza, adding that these aircraft will serve Mexico’s domestic mid-den-

frames per month. Green aircraft get delivered to two customization centres, either in Ulyuanovsk or in Venice, where they are outfitted depending on the customer preferences. Russia’s United Aircraft Corporation (UAC), of which SCAC is a subsidiary, forecasts that SSJ100 output will grow by 54% to 40 airframes next year.

Despite the ramp-up, SCAC so far cannot boast solid financial indicators.

Its revenue for the first nine months of the year amounted to 3.518 billion rubles ($110 million), or 14.2% down year-on-year from 2012. “This drop is to a large extent explained by objective

nancial stability of Vnesheconombank”, VEB Chairman Vladimir Dmitriev explained. Sukhoi currently holds 72% in SCAC; 25% belongs to Alenia Aermacchi of Italy, and 3% is held by Sukhoi Design Bureau.

Vnesheconombank can now convert into the Sukhoi shares some of the $633 million debt owed by SCAC as part of a $1 billion credit line opened in 2012.

The Russian government has permitted Vnesheconombank to spend some of the money received from the sale of its EADS stake on buying Sukhoi shares.

As a result, the bank may end up controlling up to 33% in Sukhoi.

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

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AEROSPACE INDUSTRY

— How is work progressing to launch series production of the Il-76MD-90A aircraft? What is the planned annual production rate?

— The Russian government in 2006 decided to move Il-76 production from Tashkent to Ulyanovsk. Aviastar-SP therefore launched a massive retooling and retraining program to prepare for series production of these aircraft with the use of advanced digital technology. In these past six years, the facility has reached a totally new level of production efficiency, both in term of our technological capacity and personnel qualification.

The first Il-76MD-90A flying prototype performed a demonstration flight on October 4, 2012. On the same day, the Defense Ministry ordered 39 such aircraft.

The flying prototype has successfully completed factory tests and started on the official testing program. We have also built an airframe for endurance testing, which is currently at the Central Aerohydrodynamic Institute (TsAGI). We are building three production examples, which will be part of the pilot batch. Factory tests on the first production aircraft will commence next January. We are planning to deliver two production examples next year, one in April and the other in October.

We are already capable of building six to eight aircraft 4

Aviastar-SP

Busy future for Ulyanovsk facility

The Ulyanovsk-based Aviastar-SP aviation facility used to build Antonov An-124 Ruslan heavy-lifters. Now the plant is launching series production of the upgraded Ilyushin Il-76 transport aircraft. General Director Sergey Dementyev told Russia & CIS Observer about the plant’s current programs and plans for the future. a year. Under the instructions of the United Aircraft Corporation (UAC), we must be able to build 18 aircraft a year by 2018.

— What is the status of the Tupolev Tu-204 family of airliners?

— At present, Aviastar-SP provides airworthiness maintenance services on those examples which have been built to date. Tu-204-100V production has been suspended because the decision was made in 2010 to upgrade this modification to the Tu-204SM standard. We were requested to build two such airframes, which underwent a series of tests in 201112. The Interstate Aviation Committee certified the Tu204SM in May 2013.

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

— The latest modernization effort on the An-124 Ruslan transport is entering its final phase. What is the status of this program, and what are your plans for the future?

— Aviastar-SP has been contracted by the Russian Defense Ministry to restore and upgrade its six Ruslan aircraft. Three airframes have already been returned to the customer. The fourth aircraft will be ready by the year-end, and work on the remaining two will be completed in 2014. In parallel, we provide airworthiness maintenance services on the An-124 fleets operated by the Volga-Dnepr and Polet air carriers.

— Will An-124 production be resumed?

— This is part of the UAC plans. Resumption of production would require significant funding. However, before investing, we need to have a firm consolidated launch order.

— What is the current development strategy for Aviastar-SP? What are your priority programs?

— Aviastar-SP positions itself as the primary manufacturer of transport aircraft. Our main product is the Il76MD-90A. We participate in the production of the RussoIndian MTA transport. The facility also works on several civilian products. I have mentioned the Tu-204 and An124 programs. Our other activity is installing interiors on Sukhoi Superjet 100 airliners.

We are seriously involved in the Irkut MC-21 program.

— You will need more hands to work on all these programs. What is your personnel policy?

— In January this year, after the signing of the Il-76MD90A contract, we launched a new recruitment campaign.

This is of course a complex task, but we had been preparing beforehand by training our existing personnel. Right now we have around 2,000 regular staff.

As production ramps up, their number should reach 5,000.

We will need even more if there are contracts for the Tu-204 and other aircraft types.

This interview is prepared by Dmitry Churov.

AEROSPACE INDUSTRY

Antonov jet enters foreign markets Since the first deliveries to St Petersburg-based launch customer Rossiya – Russian Airlines in 2009, the Antonov An-148/158 family of regional jets has remained a niche product. Now, however, a new marketing strategy has evolved that may help expand the aircraft’s international presence as lessors are beginning to promote it as a replacement for the BAe146 and Avro RJ models. Although unlikely to boost sales dramatically, this development could result in more Antonov jetliners operated around the world Polina Zvereva

A

t the recent MAKS 2013 air show in Zhukovsky outside Moscow, two airlines – Angara of Russia and Cuba’s Cubana de Aviacion – signed up for additional An-148/158 aircraft.

The new contracts had been expected in both cases. Angara ordered two An148s from Russian lessor Ilyushin Finance Co. (IFC), to be built at Voronezh-based VASO factory and delivered in 2014. The contract is understood to be worth over $60 million.

Angara already operates three of the type, delivered by IFC in 2012 under an

agreement signed in 2011 with the carrier’s Irkutsk-based parent company Eastland. The contract covered five firm orders and an option for five more An-148s.

Angara became the third Russian commercial carrier to operate An-148s after Rossiya, with six such airframes in its fleet, and Polet Airlines with two.

Rossiya became the launch customer on the type in December 2009. The airline’s An-148 fleet accumulated 18,628 flying hours in 2012, or around 5% up on the 2011 figure (17,759 hours). The 2010 flying time was just 6,500 hours, but Rossiya back then had only three An-148s. The airline had originally

complemented its six firm orders by an option for a further nine. However, the idea to further expand the An-148 fleet was dropped after Rossiya became a part of Aeroflot Group, losing VASO a potential nine-ship contract.

VASO reports that by mid-July 2013, the monthly flying time for Rossiya’s An-148 fleet averaged at 300 hours per airframe. Polet’s figure was 200 hours; one of Angara’s An-148s clocked 250 hours in June. To put this in context, individual Russian carriers accumulate up to 400 flying hours per aircraft per month on their Airbus A320 family medium-range jetliners. This makes 200-250 hours for the An-148 regional jet quite a good figure, and 300 hours per month is very impressive indeed.

Speaking of government operators, a single An-148 has been delivered to the Russian president’s administrative department, and two more aircraft to the Russian Emergencies Ministry. As announced at the VASO general meeting

Fyodor Borisov / Transport-Photo.com

The monthly flying time for Rossiya’s An-148 fleet averaged at 300 hours per airframe

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RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

of shareholders in June, the company landed an order in May to build 15 An148s for the Russian Defense Ministry.

Deliveries are scheduled to begin by year-end and continue until 2017.

The first An-148 under this deal is expected to be handed over to the Russian Defense Ministry shortly. The Aircraft Interiors Association (AIA) announced a new order for a VIP configured An-148 at MAKS 2013. The formal customer is the airframe manufacturer VASO. Under the contract, deliveries of Russian-made furniture for the airliner’s cabin should have been completed by late September 2013.

AIA is not disclosing the name of the end customer, but there are indications that the aircraft may be intended for the Defense Ministry.

A VASO conference last fall discussed the possibility of accommodating a consolidated government order for the type. Russia’s United Aircraft Corporation (of which VASO is a subsidiary) said at the time that up to 20 such aircraft might be ordered.

Cuba’s major carrier Cubana became another customer for the Antonov regional family at this year’s MAKS. South American Aircraft Leasing (SAAL), a subsidiary of International Aircraft Leasing Holding, used the air show to hand over to the Cuban carrier its third An-158 under a contract signed at the previous MAKS in 2011.

Production of the batch at the Ukrainian OEM Antonov was organized by IFC; a group of Russian banks led by Roseximbank financed the deal.

Also at this year’s MAKS, Cubana firmed up its option for three more An158 aircraft, which was signed in spring 2013 following the first delivery.

The An-158 is a stretch of the An-148 formerly known as the An-148-200. The version was rolled out in April 2010; certification was completed in 2011. The An-158 unit cost is estimated at $28-30 million, depending on options. The total value of Cubana’s six-ship order may therefore reach $180 million.

Cubana de Aviacion chooses Russian- and Ukrainian-built airliners for their balance of price and quality.

Fyodor Borisov / Transport-Photo.com

AEROSPACE INDUSTRY

Line maintenance is performed in Cuba; further plans call for offering heavy maintenance forms in that country. Cubana technical personnel will travel to Russia next year to receive relevant training.

SAAL head Ralph Dieter MontagGirmes says his company “hopes that Cubana’s passenger numbers will continue grow, and does not rule out that the carrier will place additional orders in the next two years”. At Farnborough air show in 2012, SAAL signed an agreement to deliver 15 Antonov aircraft to Latin America, including three An-158 firm orders and an option for 12 An-148/158s.

IFC sees a potential market for the An-148/158 among the current oper-

At this year’s MAKS air show Cubana airline firmed up its option for three more An-158s

countries. Unlike the four-engined BAe 146 and Avro RJ, the An-148 has only two powerplants, which considerably reduces the associated maintenance costs.

“The An-148 family is definitely niche aircraft with an incredible unpaved runway capability,” says IFC International Sales and Marketing Director Stewart Cordner. “I know that some BАе 146 and Avro RJ operators are seriously looking to upgrade their fleets with An-148s, and we are in talks with them. BAe146 and Avro RJ operators are forced to look for replacements because their airliners have been

IFC sees a potential market for the An-148/158 among the current operators of the BAe 146 regional jetliner and its Avro RJ modification ators of the BAe 146 regional jetliner and its Avro RJ modification, which were built in the UK between 1983 and 2002 and seat 70 to 112 passengers.

These aircraft are currently flown commercially around the world, including in Australia, New Zealand, Belgium, Bulgaria, Germany, Great Britain, Ghana, and Botswana. They are also operated in transport roles by government agencies in a number of

out of production for nearly 13 years, the size of the operational fleet continues to shrink, and maintenance costs keep rising. Therefore, we believe that [the An-148] will prove an ideal alternative for those carriers not wishing to operate in the low-fares segment, and also for operators serving the oil-andgas sector or working under government contracts in the interests of security agencies.”

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

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AEROSPACE INDUSTRY

MC-21 airliner readying for series production Irkut is tooling up to accommodate all orders for its new aircraft design

Alexei Sinitsky

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MC-21 commercial operation is expected to start in 2017

tions. Irkut currently supplies 12 shipsets per month, corroborating the statement

by Christopher Buckley, Airbus Executive Vice-President Europe, Asia, and the Pacific, that every third airliner of the A320 family contains Russianmade components.

This cooperation raises a number of questions. The MC-21 is being targeted at the same narrowbody segment as Airbus’s A320 family and future A320NEO model. “We will be competing with Airbus, but this does not preclude our mutually beneficial industrial cooperation,” says Irkut President Oleg Demchenko. “In the course of this program our corporation has demonstrated the international-level quality of its products.”

Airbus stresses that Irkutsk is involved in mass production of A320 airliners, because 12 shipsets per month translates to 144 sets per year. “There is no other program to manufacture structural components within the Russian commercial aircraft industry that could boast equally high production rates and international-level quality standards,” says Alexander Gaponyuk, Airbus’s manager for industrial cooperation with Eastern Europe and Russia. “Thanks to its co-

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

operation with Airbus, Irkut has gained valuable experience and introduced advanced managerial methods applicable to large-scale production for commercial aviation components, which can be used in international and Russian programs alike.”

Alexander Veprev, general manager of Irkutsk Aviation Plant and Irkut vice-president, says the corporation is now actively applying its Airbus componentry production experience in preparing for the MC-21 production launch. All the requisite technological processes have been developed, including the procurement cycle, forging and machining processes, structural assembly, quality control, and process management. The corporation is refurbishing its manufacturing tools: a flow assembly line has been purchased from Durr Systems.

In confirmation of Demchenko’s statement that competition with Airbus won’t hamper the on-going partnership, Raphael Duflos, head of procurement and quality supply chain at Aerolia, has reported that his company intends to develop cooperation with Irkut both in terms of ramping up the production output and expanding the range of products manufactured.

Irkut

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s demonstrated at the MAKS 2013 air show this August, Russia’s new Irkut MC-21 mainline narrowbody passenger aircraft is enjoying strong demand from lessors and carriers, despite the fact that the airliner is still under development. A total of 82 such airliners were ordered during MAKS alone, for a combined value of nearly $6.7 billion. In particular, Russian lessor VEB-Leasing firmed up its 30-ship contract at the show; Ilyushin Finance Co. (IFC) did the same with its option for 22 aircraft.

Irkutsk-based carrier IrAero signed up for 10 aircraft, while Sberbank Leasing committed to 20. Depending on configuration, the unit cost under these contracts varies between $72 million and $85 million.

Prior to this year’s MAKS, the MC21 portfolio stood at 256 units, including 135 firm orders. Commercial operation of the type is expected to commence in 2017. It is obvious that such a hefty backlog must be met with appropriate production capacities, or deliveries will slip.

Another MAKS event, one that would at first appear to have no connection to the MC-21 program, was the delivery to Airbus of the 500th A320 nose landing gear bay shipset for A320 manufactured

by Irkut Corporation. Airbus has been outsourcing to Irkut since 2004; the Russian company manufactures nose landing gear bays, flap tracks, and keel beams for the A320 family. Since 2009, these components have been delivered to Airbus via aerostructures specialist Aerolia, which builds A320 fuselage sec-

AEROSPACE INDUSTRY

Rostec eyeing the regional aviation market Polina Zvereva

locally built Bombardier aircraft, Rostec in October 2013 successfully lobbied against the initiative of the Ministry of Industry and Trade to lift the 20% import duty on imported turboprops seating up to 72 passengers.

In the meantime, Rostec is in talks with other potential partners including EADS, whose subsidiary ATR builds turboprops of Q400 size. The decision on a type to be assembled in Russia may be taken by the year-end.

The Russian corporation also signed a deal with Austrian manufacturer Diamond Aircraft this summer to jointly develop and build a smaller aircraft.

The presidential commission for general aviation approved the project in October. Rostec estimates overall investments in the future joint venture at around 10 bln rubles ($310 mln) through to 2018. The program covers two twin-engined models to be developed from scratch. One will seat nine passengers, the other will seat 19. In the first phase, both the airframes and engines will be built entirely in Austria.

The second phase will see production of some components moved to Rostec enterprises. In particular, composite

R

Rostec and Diamond Aircraft will jointly develop new regional aircraft

ATO.ru

ussia’s Rostec State Corporation has by now come to control virtually all the domestic aerospace component vendors, from engine houses to avionics specialists. Now the aviation giant is planning to have an indigenous final assembly capability for regional turboprop airliners.

In August Rostec signed a MoU with Canadian manufacturer Bombardier to set up a Russian assembly line for Q400 turboprop aircraft. The CIS-wide Interstate Aviation Committee certified this model in mid-2012; three of the type are already in service with Yakutsk-based Yakutia Airlines.

The Russian project is set to become Bombardier’s first assembly line outside North America. The 50/50 joint venture is estimated to cost $100 mln.

Bombardier will contribute with production technology, design documentation, and intellectual property rights.

Rostec, for its part, undertakes to build an assembly facility in the Ulyanovsk port special economic zone in 2014.

Russian assembly of Q400s should begin in 2015, followed by the launch of local airframe components production in 2016. The Ulyanovsk facility is expected to build up to 24 airliners per year. Alexei Fyodorov, Rostec’s managing director for aviation projects, says there is a market for 250 aircraft of the Q400 class in Russia through to 2030, and that the design capacity of the Russian assembly line would be enough to meet the potential demand.

Russian-assembled Q400s will spare domestic carriers the necessity of having to pay a hefty import duty on foreign-made airliners of this size. In order to up the competitive advantage of

structures should be produced by RTChemcomposite. The aircraft’s 450 and 750 hp diesel engines will also be built in Russia eventually. In the final phase, by 2016, a new production line capable of building up to 60 dieselpowered composite aircraft per year will be built in Russia.

Fyodorov says cooperation with Diamond will help dramatically reduce the price and operating costs of GA aircraft, while increasing their fuel efficiency. The new facility may be built at Rostec’s Yekaterinburg-based Ural Works of Civil Aviation (UWCA). This facility already assembles Diamond DA-40NG-Tundra single-engine aircraft, the assembly of another model – DA-42 Twin can be a next step.

Rostec explains its interest in regional airliners by the fact that Russia’s key aerospace manufacturer, the United Aircraft Corporation, does not build any aircraft in this class, nor is it planning to start building them any time soon. Virtually no regional-class airliners get built in Russia, for the exception of small batches of 50-seat Antonov An-140 turboprops produced by the Samara-based Aviacor plant.

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

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DEFENSE

Fyodor Borisov / Transport-Photo.com

Russian defense budget set to grow again

Maxim Pyadushkin

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ven the current economic stagnation in Russia won’t force the government to cut military spending. A draft federal budget for 2014 and for 201516, which passed its first reading in parliament this October, calls for yet another double-digit hike in national defense expenditures. These are set to grow by 18.4% to 2,489 billion rubles ($76.6 billion at the current exchange rate) next year, and by a further 21.6% (to 3,027 billion rubles) and 11.6% (to 3,378 billion rubles) in 2015 and 2016, respectively.

Defense expenditures will grow steadily as a proportion of the country’s overall budget from 15.6% in 2013 to 17.8% in 2014, 19.7% in 2015, and 20.6% in 2016. The defense budget will amount to 3.4% of Russia’s GDP in

2014, 3.8% in 2015, and 3.9% in 2016 – a significant increase from the 3.2% level reported in 2013.

Despite its growing size, Russia’s defense budget is growing increasingly less transparent. The parliamentary defense committee reports that less than 50% of defense spending for the year 2014 (just 1,012 billion rubles) is open to public scrutiny, and this proportion will become even smaller in the coming years.

According to the committee, “the budget funding allocated [for defense purposes, while being] on the whole sufficient for the accomplishment of major strategic goals in developing the Russian armed forces”, does not succumb to proper analysis, including the money earmarked for re-armament with new weaponry and equipment.

Despite their opaque spending practices, it is clear that the national armed forces will continue to turn into a small-

RUSSIA'S DEFENSE EXPENDITURES

billion rubles

3000

National defense expenditures % of Russia’s overall budget

28 24

2500

20

2000

16

1500

12

1000

8

500

4

0

0 2012

10

2013

2014

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

2015

2016

%

3500

er but more effective and combat-ready structure in the reform process which was launched at the end of the 2000s.

The current size of the Russian military is officially put at 1 million people, but the real figure is even smaller than that.

According to a recent report by the Russian Accounts Chamber, the actual strength of the armed forces stood at 766,055 as of January 1, 2013, including 10,000 civilian personnel. The Defense Ministry is planning to reach 95-100% staffing levels by the end of 2014.

This force restructuring is accompanied by massive re-armament efforts under a 10-year defense procurement program launched in 2010. The program is estimated at 19 trillion rubles; apart from the armed forces, it caters for the needs of the Interior Ministry and other government paramilitary organizations. The current economic uncertainty has forced the government to cut some civil budget expenditures, but a proposed 5% slash to the defense procurement program never took place.

Instead, according to the parliamentary defense committee, some of the procurement plans under the program were postponed until 2017-2020.

This postponement is seen not only as a temporary budget saving solution but also as a brief break for the country’s defense industry, which has suddenly found itself inundated with domestic orders.

DEFENSE

Reciprocal affection Sukhoi fighters will remain the backbone of the Russian Air Force Maxim Pyadushkin

phase is expected to be finished and blueprints issued for the manufacture of the gas generator and engine demonstrators. Engine prototypes should be built and enter into testing in 2016.

Earlier, Russian Air Force Commander-in-Chief Lt-Gen Viktor Bondarev said that the flying phase of the joint evaluation trials should begin in 2013. Series production of the new fighter is expected to be launched in 2016. According to Mikhail Pogosyan, head of Sukhoi’s parent company United Aircraft Corporation (UAC), 25 billion rubles (about $780 million) will be invested in setting up a T-50 assembly line at Sukhoi’s Komsomolsk-on-Amur facility, which already houses the assembly line for Russian Air Force Su-35S multirole fighters.

The Su-35S generation 4++ multirole combat aircraft is expected to be operated by the Russian Air Force alongside the T-50. The Russian military placed an order for 48 of the type in 2009. The first two airframes were delivered in 2011, another eight followed last year. The type is now undergoing join evaluation trials. Sukhoi reported earlier that the results of the flight testing program had corroborated the design perFyodor Borisov / Transport-Photo.com

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ussian jet maker Sukhoi continues the development of the T-50 fifth-generation fighter for the national air force under the PAK FA program.

The fifth prototype of this aircraft made its hour-long maiden flight at Komsomolsk-on-Amur on October 28.

The manufacturer is not explaining how the T-50-5 differs from the previous prototypes, nor does it disclose what kind of tests the airframe is intended for. After the factory trials, T50-5 will join the other four prototypes, which are currently being test-flown at Zhukovsky outside Moscow. Two more airframes are involved in the ground test: one of them is used as a ground rig, the other one is undergoing static tests.

The T-50 is intended to replace 4th generation Sukhoi Su-27/30 aircraft in the Russian Air Force. It will also serve as the baseline for the Russo-Indian Fifth Generation Fighter Aircraft, being developed jointly by Sukhoi and Hindustan Aeronautics Limited.

The first T-50 prototype flew in January 2010; the flight test program started in April same year. The T-50-3 prototype, equipped with an AESA radar, joined the trials in 2012, the same year as tests began on the fighter’s inflight refueling capability. According to Sukhoi, in the three years of testing the T-50 prototypes completed more than 450 flights in total.

The T-50 prototypes involved in the flight tests are currently powered by a pair of Item 117 engines, which represent a radical upgrade of the NPO Saturn AL-31F design. Russia’s United Engine Corporation is looking to complete the development of a production engine for the Sukhoi T-50 fighters by late 2015.

This is when the engineering design

formance parameters for the airframe, powerplants, navigation system, and other equipment. The aircraft demonstrated a maximum near ground airspeed of 1,400 km/h and 2,400 km/h at altitude, and its maximum demonstrated altitude is 18,000 m.

The Russian Air Force has also ordered two more warplane types from Sukhoi: the Su-30M2 twin-seat fighter and the Su-34 bomber. The latter are being assembled at another Sukhoi facility, in Novosibirsk. The military has inked two contracts with Sukhoi for a combined 124 of the type. Deliveries started in 2010.

The Russian Defense Ministry expects Sukhoi to deliver 14 more Su-34 this year. The first bomber was delivered in May, two more batches followed in July and October. The 2014 production plan for the Novosibirsk facility stands at 16 aircraft, the military reports.

According to Pogosyan, the Komsomolsk-on-Amur facility is planning to deliver 27 fighters to the Russian Air Force this year, and 19 more fighters in 2014. Joint deliveries by the two Sukhoi facilities are expected to reach 51 fighters in 2015. Pogosyan says this is more than one half of all the aircraft the Defense Ministry has ordered from UAC.

In the three years of testing the T-50 prototypes completed more than 450 flights

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

11

DEFENSE

India to receive ex-Russian carrier in November Maxim Pyadushkin

T

he long-delayed program to retrofit the Indian Navy’s Vikramaditya (formerly the Russian Navy’s Admiral Gorshkov) Kiev-class aircraft carrier is finally nearing completion. According to Russian Deputy Prime Minister Dmitry Rogozin, the ship “will leave our waters and head for India on November 30”.

The handover ceremony took place in Severodvinsk, where the Vikramaditya was overhauled, on November 16.

The program to repair and upgrade the Vikramaditya has been on at the Sevmash wharf since 2004. The carrier was given to the Indian Navy free of charge, but the cost of its refurbishment — initially estimated at $800 million – eventually reached $2.3 billion. The modernization effort included the removal of all weaponry from the ship’s foredeck, which was then extended and fitted with

a received a ski-jump ramp for MiG-29K STOBAR capability. The Russian shipbuilder de-facto created a new ship, as the Vikramaditya also received advanced navigation and radar systems, as well as new aviation control and communications equipment.

The refurbished ship’s displacement will exceed 45,000 tons. With a length of 283 m and a width of 59.8 m, the carrier can accommodate a 1,924strong crew, as well as 24 MiG-29K fighters and six helicopters.

India in 2004 ordered 16 MiG29K/KUB fighters from Russia, including 12 single-seaters and four twinseaters. This deal, valued at $730 million, was followed in 2010 by a $1.2 billion contract for 29 more of the type.

The MiG-29K is a profoundly modernized version of the Soviet-era fighter of the same designation. The current

Sevmash

MiG Corp.

INS Vikramaditya MiG-29K fighter takes off from the carrier’s ski-jump ramp

12

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

variant has an upgraded airframe with extensive use degree of composites, a digital fly-by-wire system, in-flight refueling capability and new avionics, including a full glass cockpit and a Zhuk-ME slot array radar. The MiG-29K features reduced radar signature and can carry greater weapons loads, which include air-to-air and air-to-ground munitions.

Flight testing of the MiG-29K version for the Indian Navy started in 2007 and was completed two years later with a test landing on the Russian Navy Admiral Kuznetsov aircraft carrier.

Deliveries started in 2009; the type was officially put into service with the Indian Navy in February 2010. In May this year, the Indian Navy commissioned its first MiG-29K squadron at Hansa naval air station in Goa. At present the Indians operates about two dozen of these fighters.

The Vikramaditya was initially expected to be handed over to the customer in December 2012. The delivery date slipped one year after the ship suffered a malfunction in the steam boilers of its propulsion system during sea trials in summer 2012.

A new round of trials in Russia’s White and Barents seas was completed this September. According to Sevmash, the ship reached a maximum speed of 29.2 knots up on the design speed of 29 knots, proving the reliability of its powerplants.

In the course of the trials MiG-29K fighters performed 57 test flights from the Vikramaditya with 47 subsequent landings on the carrier’s deck, including 12 night-time take-off and landings. Kamov Ka-31R and Ka-27PL coaxial-rotor helicopters flew 30 sorties. Sevmash representatives say that since the beginning of the sea-trial phase in June 2012, the Vikramaditya has spent 108 days at sea, covering 12,650 nautical miles.

AIR TRANSPORT

Aeroflot launches a low cost subsidiary Maxim Pyadushkin

Aeroflot also gave a name Dobrolet to one of its A320s in historical livery

Aerospace Leasing, and SMBC Aviation Capital. The fleet will be subsequently expanded by 8 aircraft per year, says an Aeroflot news release.

Aeroflot CEO Vitaly Savelyev earlier mentioned that Dobrolet may also start operating Airbus A320 family airliners.

Aeroflot announced its discounter plans in December 2012, saying that the government should first accommodate the project by amending the country’s air regulations to decrease the future carrier’s operating costs. Savelyev reiterated this requirement at a recent Dobrolet presentation: “Low-cost carrier will not take off in Russia if we do not harmonize our legislation with the global standards such as non-refundable tickets, paid onboard meals and luggage, and [revocation of the current ban on hiring] foreign pilots. We expect the appropriate legislative decisions to be taken by the end of this year. By doing so, the government will contribute greatly to the launch of the project of huge importance to Russia.”

Dobrolet will be headed by Vladimir Gorbunov, former CEO of now-defunct Russian LCC Avainova. Like the country’s first budget airline SkyExpress, Avianova ceased operations in 2011 due to financial difficul-

ties. During their last year these two operators carried 942,000 and 1,049,000 passengers, respectively, coming 15th and 13th in the top ranking of Russian airlines. Since that time, Russia has had no national low cost carriers.

Aeroflot says it is planning to invest $100 million in the new subsidiary in the first two years of its operation.

Meanwhile, Aeroflot Group’s IFRS revenue grew by 14% in the first six months of 2013 to $4,132.6 million.

Operating profit increased by 70% to $167 million. The release says the group’s net income totaled $1.5 million over that period, compared to $7.1 million in the first half of 2012. Aeroflot explains the net profit decrease by noncash revaluation of finance lease liabilities denominated in foreign currency.

Besides Dobrolet and Aeroflot proper, Aeroflot Group includes several other sister air carriers: St Petersburgbased Rossiya, Rostov-on-Don-based Donavia, and Orenburg-based Orenair.

Two more subsidiaries, Vladivostok Air and SAT Arilines, are in the process of merging to produce a new carrier, Aurora that will be performing domestic and international flights from Russia’s Far East.

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

13

Aeroflot

R

ussia’s largest air carrier Aeroflot announced in October it was setting up a 100% low-cost subsidiary to be known as Dobrolet. The new carrier is named for the first Soviet commercial air transport organization of the 1920s, which later served as the basis for the creation of Aeroflot.

Dobrolet is expected to begin revenue flights in spring 2014.

Aeroflot has not yet decided on a Moscow airport from which Dobrolet would be operating, but it is clear that the parent company wants to avoid competition at its Sheremetyevo home base. Domodedovo and Ramenskoe are currently being discussed as possible options. The former is the largest airport in Russia, and home to Aeroflot’s main rivals Transaero and S7 Airlines, while the latter is used as a testing facility and a cargo hub, as well as hosting the biennial MAKS air show.

Dobrolet has no air operator’s certificate as yet, but Aeroflot has already reported that its low-cost subsidiary will be initially flying across the European portion of Russia. Eight destinations are planned for the first year of operations: St Petersburg, Krasnodar, Yekateringburg, Samara, Makhachkala, Ufa, Kaliningrad, and Novy Urengoy. In 2015, Dobrolet plans to expand domestic operations to 19 destinations.

Foreign cities such as Kiev, Yerevan, and Istanbul may be added in 2016.

In the first year, Dobrolet’s fleet will comprise eight brand-new all-economy Boeing 737-800 narrowbodies.

Aeroflot’s board on October 16 approved the lease of these aircraft through several lessors, namely AWAS, BBAM Aircraft Management, Avolon

AIR TRANSPORT

Sergey Sergeev

Against all odds

Maxim Pyadushkin

R

ussian passenger air traffic continues to grow despite the persisting nationwide economic recession.

Expectations are for the figure to exceed 100 million passengers in 2013, according to a forecast by Russia’s Transport Clearing House (TCH), the national agency charged with collecting air transport-related statistics. Russian airlines are projected to carry 38.2 million passengers domestically and 46.7 million people on international routes this year. A further 18.9 million passengers should be carried into or from Russia by foreign airlines.

This means that the Russian air transport industry will demonstrate a doubledigit growth compared to 2012, when the volume of passenger traffic totaled 91.6 million, including 35.4 million people on domestic routes, 38.6 million on international flights carried by Russian carriers, and 17.6 million carried by foreign 14

airlines. The industry on the whole has seen a threefold increase in traffic volumes for the last 10 years since 2003, when a total of 34.6 million passengers was carried, says TCH Vice-President Marina Bukalova. She also notes that the share of international traffic will hit 63% in 2013 against 61% a year before, and is likely to continue its domination in future as more direct international flights get launched from Russian regions thus taking Moscow as the country’s major hub out of the equation.

The TCH expectations have so far been confirmed by industry statistics.

According to the Federal Air Transport Agency, Russian airlines carried 65.2 million passengers on domestic and international routes in January through September, or 14.7% up year-on-year.

Passenger turnover saw a 16% increase to to 172.9 billion passenger-kilometers; the passenger load factor grew by 1.4%, reaching 80.8%.

The growth in passenger transportation slowed down a bit in September:

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

Russian airlines carried only 8.5 million people that month, just 9.7% up on September 2012. Passenger turnover grew by 7% to 21.7 billion passengerkilometers.

All of the top five Russian carriers — Aeroflot, Transaero, UTair, S7 Airlines, and Aeroflot’s subsidiary Rossiya — showed an increase in passenger traffic.

Aeroflot remains the country’s largest airline, with 15.7 million passengers carried by itself and almost 24 million passengers as a group, which also includes Rossiya, OrenAir (8th in the ranking), Donavia (12th), Vladivostok Air (14th), and SAT Airlines. The latter two carriers are in the process of being merged into a new company named Aurora, which will operate domestic and international routes across Russia’s Far East.

The fastest growth among the top five has been demonstrated by Transaero.

However, according to its 2013-18 development strategy, the airline is now planning to focus on improving its fi-

AIR TRANSPORT

nancial performance at the expense of network expansion plans. The carrier’s IFRS revenues in the first half of 2013 have reached 45.5 billion rubles (about $1.4 billion), and its net profit stands at 464 million rubles.

Of the top 20 Russian airlines, the most impressive growth has been demonstrated by charter operators such as Kolavia, IFly, and Nordwind. This looks like the result of a successful summer vacation season.

At the same time, Russian cargo traffic is evidently stagnating. The volume of cargo and mail carried in the first nine month of the year grew just by 1.6% year on year to 730,322 tons, while the cargo turnover figure dropped by 1% to 3.7 billion ton-kilometers.

September saw a 2.2% decrease in the volume of cargo carried (85,481 tons), and a 10.3% slump in cargo turnover to 410 million ton-kilometers.

In the meantime, air traffic in neighboring Ukraine continues to shrink.

According to the Ukrainian Statistics Service, the country’s airlines carried 6.1 million passengers in January

Key performance indicators for Russian civil aviation Indicator

Jan-Sep 2013

Year-on-year Sep 2013 Year-on-year change to 2012, % change to 2012, %

Passenger traffic, mln pax-km 172,926 Including: International routes 113,277 Domestic routes 59,649 Cargo turnover, mln ton-km 3,696 Including: International routes 2,967 Domestic routes 728 Passengers carried, thousand 65,239 Including: International routes 35,487 Domestic routes 29,752 Freight and mail carried, thousand ton 730 Including: International routes 508 Domestic routes 222 Passenger load factor, % 80.8 Including: International routes 83.3 Domestic routes 76.5 Source: Federal Air Transport Agency

through September, down 4.3% on the same period in 2012. Passenger turnover dropped 17.3% to 9.4 billion

+16.0

21,678

+7%

+20.4 +8.4 -0.7

13,831 7,847 423

+5.6 +9.4 -7.6

-0.2 -2.5 +14.7

328 94 8,552

-6.9 -9.8 +9.7

+18.8 +10.2 +1.6

4,703 3,848 85

+7.9 +12 -2.6

+2.5 -0.3 +1.4

57 28 83.2

-1.9 -3.9 +0.4

+0.7 +2.1

85.2 79.9

-1.1 +2.6

passenger-kilometers. In 2012, air traffic in Ukraine totaled 8.1 million passengers.

Top 20 Russian airlines, by passengers carried in January through September 2013 (international and domestic routes) Ranking

Airline

Passengers carried, thousand Jan - Sep 2013 Year-on-year change to 2012, %

Passenger km, million Jan - Sep 2013 Year-on-year change to 2012, %

Passenger load factor, % Jan - Sep 2013 Year-on-year change to 2012, %

1 2 3 4 5 6 7 8 9 10 11 12 13

Aeroflot Transaero UTair S7 Airlines Rossiya Airlines Ural Airlines Nordwind OrenAir Globus VIM-Avia Yamal Donavia NordStar

15,732 9,823 6,352 5,355 3,589 3,427 2,656 2,547 1,723 1,113 1,063 1,004 982

+18.4 +21.6 +6.3 +12.2 +6.7 +26.6 +60.4 +4.6 +16.7 -6.1 +54.0 +37.1 +10.6

45,362 36,294 12,859 10,730 7,241 9,092 9,930 8,873 4,219 2,451 2,136 1,506 2,632

+20.1 +16.0 +10.8 +9.2 +4.6 +24.7 +54.9 +15.1 +23.5 -9.9 +61.3 +40.6 +16.5

79.7 85.3 78.9 82.8 78.1 75.8 88.0 82.8 84.5 84.3 74.5 68.1 76.7

+1.2 +1.4 +3.2 +1.6 -0.5 +2.8 -2.7 -4.6 +1.9 +2.0 +6.7 -2.7 +2.9

14 15 16 17 18 19 20

Vladivostok Air Kolavia I Fly Yakutia Tatarstan Nordavia Rusline

930 915 870 858 624 589 411

+1.9 +70.0 +67.4 -6.1 +64.7 -7.7 -8.3

2,190 2,584 2,713 2,660 1,559 789 548

-14.7 +88.8 +55.1 -8.9 +93.7 -7.8 -28.5

69.6 89.8 91.1 75.1 86.5 74.1 72.6

+1.1 -0.6 -1.5 -0.2 +12.0 +4.1 -5.7

Source: Federal Air Transport Agency RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

15

BUSINESS AVIATION

Controversial growth Stability on the Russian bizav market is good for everyone except the Russian market Elizaveta Kazachkova

T

he Russian clientele, historically one of the drivers behind business aviation growth globally, has become crucial both for the European private charter market and for major OEMs in the challenging post-crisis environment.

Whereas other European countries are reporting a 35% year-on-year decrease in flight activity, or struggling to overcome the stagnation curve, Russian demand for private charters has been growing at a more or less constant rate for the past three years. According to the Avinode online bizav charter system, the trend is here to stay: charter requests through the system grew 44% in 20112012, while in 2013 the growth “slowed” to a sound 21%. Even though Avinode warns these numbers

are not directly linked to actual flights, because the “look-to-book” ratio for Russian charter brokers is much lower than for their European colleagues, the statistics still correlates nicely with the big picture: Russia is one of the strongest and fastest-growing singlecountry bizav markets in the world, and its position is as stable as ever.

Stable not only in terms of strong demand, but also in the market’s typical features and in the persistent drawbacks that inhibit natural development of the industry, which should normally accompany such impressive growth. According to Avinode, the vast majority of private flights in Russia link Moscow with destinations abroad, the most popular being Nice, Geneva, Dubai, Chambery, and London. The only domestic destination that made it to the Top 10 is St Petersburg (ranked 9th).

Leonid Faerberg / Transport-Photo.com

Russians traditionally prefer large-cabin, long-range jets for their private travel

16

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

Wingx Advance data shows that Moscow’s Vnukovo is one of the busiest airports in Europe, behind Luton, Geneva, and Le Bourget. The Vnukovo 3 bizav terminal handled 19,587 flights in 2012, translating to about 60 flights per day on average. The number of business passengers serviced totaled 137,874 people. In the first six month of 2013 the terminal reported around 9,375 flights and 64,916 passengers serviced.

Russians traditionally prefer largecabin, long-range jets for their private travel. The list of popular aircraft models opens with the Embraer Legacy 600, and includes the Bombardier Challenger 604 and Global Express, the Cessna Citation XLS, and a variety of larger Gulfstreams and Falcons, Avinode notes. Heavy jets account for 60% of all departures: 770 charter flights out of Russia were operated by ACJs in May 2013. These figures from the Wingx Advance monthly monitor are a good illustration of the sheer Russian scale.

Many OEMs confirm these estimations. According to Dassault Aviation, the Falcon fleet in Russia and other CIS countries has doubled over the past five years, with more than 60 Falcon jets now in operation. Seven new aircraft were delivered to the region in the first half of 2013 alone, accounting for some 15% of Dassault Falcon’s worldwide deliveries. Gulfstream Aerospace President Larry Flynn has told Russia & CIS Observer that 53 Gulfstream jets are now operated in Russia, and 23 more aircraft elsewhere in the CIS, comprising almost 40% of the OEM’s European fleet.

Airbus Corporate Jets reports it has delivered more than 25 business jets to Russia and the CIS, or some 15% of global Airbus business fleet.

BUSINESS AVIATION

The number of business airliners supposedly owned by Russians but registered, operated, and serviced outside the country is estimated at anywhere between 350 and 550 units. The number of Western-built aircraft officially operated in Russia is below 50. High import taxes and VAT remain the largest impediment to bringing Western aircraft models to Russia and operating them under Russian jurisdiction.

Nevertheless Bombardier forecasts 525 new business-jet deliveries to the region between 2012 and 2021.

Inside the country, a lack of oversight leads to an across-the-board practice of domestic commercial flights on foreign-registered aircraft being passed off as “private” (up to 75% of all domestic charters). This is in breach of all possible national and international cabotage regulations.

The local infrastructure has not improved much over the years. Apart from the new FBOs in St. Petersburg (which is about time, to say the least, since Russia’s northern capital is home to the annual Economic Forum) and Sochi (getting ready for the 2014 Winter Olympic Games), no major improvements have been made in terms of dedicated business aviation terminals and ground handling facilities across Russia’s vast territory. A lack of competition among FBOs at the Moscow airports results in unreasonably high prices.

So, absurd as it may sound, this statement by Derek Bloom, Partner, Capital Legal Services (the agency helps Russian clients solve legal issues associated with acquiring and operating business jets in the country) best describes the actual status quo: the business aviation industry in Russia is largely nonexistent. Huge amounts of money in the form of ownership fees, operating expenses, FBO, handling and maintenance costs, catering, staff wages and what not, end up outside Russia and never reach the Russian economy on the whole, nor its business aviation sector in particular. In his report, Bloom estimates the sum at nearly 1 billion euros per year. What is robbing

BIZAV TRAFFIC THROUGH VNUKOVO 3, 2002 - 6 MONTH 2013 150000

Passengers Flights

120000 90000 60000 30000 0

6M 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: VIPPORT

Russia of all the benefits of developing this segment?

“Several Russian owners have told me that they would strongly prefer to register their aircraft in Russia, except for the single reason that they cannot afford to ‘waste money’ paying Russia’s 18% import VAT,” Bloom says.

“Russia’s import VAT may be easily avoided by registering their aircraft in Europe instead. If a Russian individual were to import an aircraft to Russia, the cost of the import VAT may become an unrecoverable cost for him or her. In contrast, if a Russian business earns significant VAT from the domestic sale of goods and services, it can recover the cost of import VAT by offsetting its VAT inputs against this VAT expense.

“Further, the supporting businesses for business aviation in Russia have geared themselves around servicing transient foreign-registered aircraft, and earn quite high fees for doing so.

Accordingly, Russian regulators and leading industry players have gotten quite used to things as they are, though things as they are may not be in Russia’s best interests,” he argues.

Bloom, with his extensive experience interpreting the Russian legislation, believes the recipe to solving the problem comprises three steps: introducing an exemption from import VAT (which would be a very welcome regulatory reform indeed); clamping down on cabotage flights within Russia; and stimu-

lating competition among FBOs by demanding that at least two different organizations offer services in each sector of every airport (commercial passenger airlines, cargo carriers, and business charters).

This is not to say that nothing is being done to change the situation. The local industry body, the Russian United Business Aviation Association (RUBAA), is doing what it’s there for.

“We are working on three things,” says Executive Director Anna Serejkina, “These are lifting import taxes for aircraft with an empty weight of under 2 tons [the import taxes for aircraft with empty weights between 2 and 20 tons have already been abolished – ed.], creating a dedicated set of regulations for business aviation, and simplifying customs procedures for business aircraft.”

However, there is one factor extrinsic to aviation per se which Bloom does not calculate into his projections (and of which RUBAA is probably very well aware): the overall climate in Russia — stitched with details such as the security of ownership rights, the fairness of justice, people’s trust in the incumbent, business transparency, social stability, etc. — is quite unfavorable. This is why it is safe to predict that even if certain improvements finally occur, the majority of high-net-worth individuals will still prefer to keep their expensive assets outside the country.

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

17

SPACE BUSINESS

The future of Russia’s launch vehicle fleet Igor Afanasyev, Dmitry Vorontsov

H

Novosti Kosmonavtiki magazine

aving a national fleet of launch vehicles is one of the key factors in ensuring a country’s independent guaranteed access to space.

Russia at present possesses a necessary and sufficient variety of expendable launchers to achieve all the current space exploration goals, but the ageing

Russia leads the world in the number of commercial space launches

18

technical capabilities of these vehicles necessitate the development of newgeneration rockets.

Russia’s light launch vehicles are represented by the Rockot, Dnepr, and Strela designs; its medium-class launchers are the Soyuz family and the Russo-Ukrainian Zenit model; the country’s heavy vehicle is the ProtonM. In the first nine months of this year, Russia performed 21 space launches. Two Rockots together inserted six communications satellites in orbit; nine spacecraft were orbited in 11 Soyuz launches, alongside three Soyuz TMA manned ships and three Progress M resupply vehicles; six Protons delivered a total of eight satellites (one of these launches failed); one Dnepr carried a South Korean satellite to orbit, and one Strela lofted a Kondor-E radar satellite. A Zenit orbited Israel’s Amos-4 telecom satellite. Another 13 launches are planned before the end of the year.

Russian launch vehicles have sufficient thrust-to-weight ratios, relatively high reliability, and come with an agreeable launch price tag. These factors, as well as the high frequency of launches (by Western standards), make them internationally competitive. As a result, Russia leads the world in the number of commercial space launches with 40% of the market.

The cost of launching a Soyuz in different modifications, depending on whether the mission is commercial or in Russia’s government interests, varies between $35 million and $85 million. For the less powerful US Delta II rocket, the price range is $65 million to $95 million. A Proton-M commercial launch costs around $90 mln, against $150 million for the similar-payload US-made Delta IV

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

Medium+, $150-180 million for the Atlas V, and some $220 million for the ESA Ariane 5. It should be noted that all these figures come from different sources, including unofficial ones, and are therefore fairly approximate.

However, Russian rockets have a number of shortcomings that affect their competitiveness. The primary shortcoming is their insufficient capability of inserting spacecraft in highenergy orbits and departure trajectories. Due to the medium energy performance of the fuel components used (such as liquid oxygen plus kerosene or nitrogen tetroxide plus unsymmetric dimethylhydrazine), and also because of the relatively low structural efficiency of their upper stages, the performance of Russian launch vehicles quickly degrades with the increase of the required launch speeds. In the meantime, modern telecom satellites are growing increasingly heavier, pushing the capabilities of Russian launch vehicles to the limit.

Another factor is that the current Russian rocket designs are based on technology of the 1950s and 1960s, and incorporate components manufactured across the country with extensive use of mechanical processing operations on specialized tools. As a rule, readying a rocket for launch requires significant manual labour inputs by a large group of specialists at the launch site. As wages grow, so does the cost of manufacturing and operating these launch vehicles, particularly in the situation when their production rates have stayed unchanged for many years. Certain components have already gone out of production, or they cost too much to manufacture (this concerns, in particular, instruments based on 50-

year-old components). This factor also brings the launch costs up.

One more oft-criticized deficiency of certain Russian launchers is that they run on toxic fuels.

Finally, due to the general skill fade in the industry and continuing degradation in process discipline, the reliability of Russian rockets has recently been raising concerns. Suffice it to recall the loss of three Glonass satellites in the failed launch of a Proton-M on July 2, 2013.

It is obviously high time the Russian fleet of launch vehicles got renovated.

For this purpose, a comprehensive modernization program has been on since the mid-1990s. However, unsystematic funding has resulted in massive delays in implementing this effort. The slipping schedule is affecting not just the image of the design houses involved but also the competitiveness of Russian launchers on the international market.

The Angara family of new modular rockets is designed to launch light, medium, and heavy satellites into highenergy orbits from a new launch site at Plesetsk Cosmodrome. Flight tests should start in 2014, so that the Angara could replace the Proton-M after the year 2020 (the Proton-M would then be retired). A heavy-class oxygen-hydrogen booster will help preserve Angara’s competitive advantages in launching massive geostationary satellites even from Plesetsk, thus making the rocket’s performance comparable to foreign equivalents. The booster is expected to enter flight tests in 2015.

The light-class Soyuz-2.1 launch vehicle is set to begin flight trials in late 2013. This rocket could be launched from the existing launch pads at Plesetsk, and also possibly from Kourou in French Guiana.

On the other hand, these new vehicles are not going to resolve all the accumulated problems of Russia’s space industry. Work to develop the Angara family, for one, is taking too long.

Many of the technical solutions implemented in the program were decided on at the spur of the moment; a number of options were never realized at all,

Novosti Kosmonavtiki magazine

SPACE BUSINESS

Flight tests of modular Angara launch vehicle should start in 2014

and in order to implement others, the upper stages have had to be redesigned in a departure from the very principles on which the entire Angara concept rests. The size of the modules constituting the Angara family, as well as the parameters of the launch site (which is built on a Zenit launch site whose construction was abandoned in the 1990s), put a cap on any further increase in the performance of these launch vehicles.

Critics note in this connection that the effectiveness of the Angara family is not that obvious.

The Soyuz-2.1 implements palliative solutions based on a combination of obsolete technology and a relatively new (but still four-decades-old) NK-33 engine with advanced instrumentation.

The projected launch cost for this rocket is in no way appropriate for a lightclass launch vehicle.

The now-defunct Rus-M program was an attempt to develop a principally new launch vehicle, but exorbitant costs involved in the development, and also the fact that the Rus-M’s functionality would partially overlap that of the Angara family, resulted in the program getting scrapped in October 2011.

Therefore, the problem of developing a future Russian fleet of launch vehicles remains pretty much unresolved.

Hence are the current active R&D efforts in this area.

Samara-based TsSKB-Progress is designing a family of rockets codenamed Soyuz-5, to be based on newest technology including engines running on liquefied natural gas. If the project is approved and enough funding becomes available, flight tests of the first variant may begin in 2020-22.

One promising program is Khrunichev Centre’s MRKS-1 reusable launcher. Khrunichev says its partially reusable launch vehicles with high payload capacity (originally 25-35 tons, and eventually up to 60 tons) will offer two to five times greater efficiency than the existing vehicles.

The next phase in the development of Russian launch vehicles is linked to possible future manned missions to the Moon and Mars. It is obvious that such missions, expected to be implemented beyond 2020, will require the creation of super-heavy launch vehicles capable of inserting over 60-70 tons of payload in low Earth orbits. Research in this area is being conducted by all Russian space enterprises. What is required is an open-architecture rocket whose payload capacity could be upgraded to 130-180 tons. A final decision has not been taken yet, because the technical specifications of the future interplanetary missions are still unclear, as is the composition of possible participants in such programs.

RUSSIA/CIS OBSERVER № 3 (38) NOVEMBER 2013

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SPACE BUSINESS

Nuclear power for space applications Igor Afanasyev

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early all the current launch vehicles used for inserting satellites into Earth orbits and placing spacecraft on interplanetary trajectories utilize rocket engines which run on chemical fuels. This technology is already exhausting its upgrade potential, especially in terms of fuel efficiency, so experts believe that switching to nuclear-powered launchers is the way to go.

At the MAKS 2013 air show held in Zhukovsky outside Moscow this

ATO.ru

A prototype of Russia’s nuclear power propulsion system should be built by 2018

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August, a team of Russian companies incorporated under the umbrellas of the Federal Space Agency (Roscosmos) and the State Nuclear Energy Corporation (Rosatom) presented a project to develop a megawatt-class nuclear power propulsion system that would be used for interplanetary missions and for delivering satellites into high-energy orbits.

Research into this technology was ordered by the Russian president back in June 2010. N.A. Dollezhal Scientific Research and Design Institute of Energy Technologies (NIKIET) is working to develop the reactor in conjunction with the Podolsk Research Institute of Technology (PNITI), Kurchatov Institute, Obninsk Institute for Physics and Power Engineering, and other Rosatom subsidiaries. The rest of the propulsion system will be designed by the Keldysh Centre, Energia Corporation, Chemical Engineering Design Bureau, Chemical Automatics Design Bureau, and other Roscosmos subsidiaries. The project’s 2010-2018 budget exceeds 17 bln rubles ($527 million).

Work has already progressed to rig tests on individual components of the propulsion system, whose prototype is to be built by 2018. The system will be designed to travel to a low-earth orbit on board Proton or Angara launch vehicles.

The USA and the Soviet Union used to actively research nuclear-powered space propulsion technology in the 1960s and 1970s. The original idea was to create an engine in which hydrogen would be heated in a nuclear reactor and then escape through a nozzle, thus producing thrust. This option was later scrapped as inefficient: although the technology can produce considerable

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thrust for a brief period of time, a reactor malfunction may contaminate the escaping gases. In addition, heating hydrogen to 2,500-3,000°C is not a trivial task and requires first solving numerous problems related to material engineering, radiation tolerance, environmental safety, etc. Owing to these complications, further work in this area was eventually abandoned.

The current proposal is to use a nuclear reactor for power generation; gas is fed through the reactor core and rotates a turbine, which drives an electric generator and a compressor. The compressor provides for closed-loop circulation of the working medium, eliminating any possibility of environmental contamination. The generator provides power for a plasma electric thruster, which consumes at least 20 times less working medium than chemical equivalents.

The project pioneers a host of innovative technology solutions, including a highly efficient energy conversion scheme; a compact high-temperature, fast-neutron reactor with gas cooling systems and nuclear/radiation safety ensured in all phases of operation; utilization of high-density fuel; a service propulsion system comprising several powerful, highly efficient electric thrusts; high-temperature turbines and compact heat exchangers with a design service life of 10 years; powerful, high-rpm electric generator converters; and large-area structures (heat exchange radiators) deployable in space.

The project to develop a megawattclass nuclear power propulsion system will help the Russian space industry create a new generation of powerful propulsion modules for future space exploration programs.

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