Russia&CIS Observer Juhai 2014 by ABE Media

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Russia & CIS Observer â&#x201E;&#x2013; 2 (40) november 2014

special focus on airshow china 2014

Russia & CIS Observer № 2 ( 40) nov em ber 2014

from the publisher of

16 10 14

Russia/CIS Observer is produced by:

• DEFENSE

• AIR TRANSPORT

Russia’s risks in aerospace

The unpredictable lease market ..........18

Publisher Evgeny Semenov

cooperation with China ......................2

EditiorinChief Maxim Pyadushkin

Su-35 expects export debut ..................6

Art Director Andrey Khorkov

Radar for naval helicopters ..................8

Sales & Marketing Director Oleg Abdulov

Regional problems ............................21

air transport ......................................22

Renovated Il-76 enters series production ..........................................9

• BUSINESS AVIATION

Commercial Director Sergey Belyaev Cover Photos Leonid Faerberg, Fyodor Borisov All rights reserved. No part of this publication may be reproduced in whole or in part without the written permission of A.B.E. Media. A.B.E. Media cannot be held responsible for any claim, error, omission or inaccuracy in advertising material supplied by advertisers.

New challenges for Russian

• AEROSPACE INDUSTRY Bizav market shrinks in Russia............25 Russian banks extend loans for the Sukhoi Superjet 100 program..............10

• SPACE BUSINESS

Mi-38 helicopter approaching Russia’s Soyuz, Progress spacecraft certification........................................14 Russia and China continue to develop

to be upgraded....................................26

a new airliner ....................................16

Proton launches resume ....................28

Visit our website at www.ato.ru/rco RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

Russia’s risks in aerospace cooperation with China Konstantin Makienko n the two years that have passed since the previous air show in Zhuhai, no radical changes have taken place in Russian-Chinese military technical cooperation. Not a single new major contract was announced for the procurement of aircraft platforms or components. Potential joint aviation projects, such as those for the development of a heavy transport helicopter or a widebody commercial airliner, did not progress past the level of political statements and preliminary market studies. The Chinese Air Force’s interest in Russia’s newest Sukhoi Su-35 fighter and S-400 long-range SAM system has not yet resulted in any tangible contracts either. On the other hand, Russia all this time continued with deliveries under major engine and helicopter contracts signed with China in 2011-2012. Thanks to these contracts, which are now nearing completion, Beijing has remained among the top five of largest importers of Russian arms and military equipment, with the two countries’ current military technical cooperation estimated at some $2 billion. The figure is comparable to the highest indicators reported in the early 2000s.

Fighter acquisitions from Russia

In the 1990s and the first half of the 2000s, China and India remained the anchor markets for Russia’s military aircraft industry. In quantitative terms, China was second after Delhi for the 2

number of fighter jets purchased. The Chinese Air Force procured 36 Su27SK fighters, 40 Su-27UBK twin-seat combat trainers, 100 Su-30MKK/MK2 multirole jets, and 105 Su-27SK kits for license production in Shenyang. In all, the service bought 281 Su-27/30 family fighters, not counting subsequent unlicensed clones. For comparison, India has purchased 290 Su-30K/Su-30MKI jets from Russia since the collapse of the USSR (18 examples of the Su-30K batch were later returned to Irkut Corporation under a trade-in scheme; 12 of these are undergoing overhaul and modernization and will be delivered to Angola). In addition, the Indian Navy in 2004 and 2010 ordered two batches of MiG-29K ship-based fighters, 16 and 29 examples respectively. In qualitative terms, however, the Chinese orders have proved of much less value to Russia than the Indian projects. The on-going Indian Su30MKI program, which started 18 years ago with the signing of the first contract for eight Su-30K and 32 Su30MKI aircraft on November 30, 1996, has enabled the IAPO production association and its successor Irkut to build a long-term development strategy, something that China’s sizeable but interspersed orders would not allow. This, however, is not the main point. The key benefit of the Indian contracts was that they served as powerful innovative stimuli for the Russian aviation industry. The Su-30MKI technical speci-

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

fications developed by the Indian Air Force in the mid-1990s tested the Russian aerospace sector to the limit of its technological capabilities of the time. It was the Indian requirements that resulted in the creation, improvement and production of thrust-vectoring aero engines, phased-array radars and advanced avionics suites, which are now the standard fit of Russian heavy fighters. In addition, the manufacturers Sukhoi and MiG obtained invaluable experience in the integration of foreign-made components into their combat aircraft. As a result, the Indian orders stimulated the Russian aircraft industry to create a combat aviation system which remains fairly modern and globally competitive 15 years on, and is the second most ubiquitous warplane in the Russian Air Force and Navy after the Su-34 bomber. For its part, the Indian order for the deck-based MiG-29K fighters predetermined the choice of new-generation ship-borne fighter for the Russian Navy, prompting that service to make an unprecedented aircraft type switch from the Su-33. By contrast, the Chinese specifications developed in the late 1990s for a multirole twin-seater were extremely conservative, and the innovative level of the resultant Su-30MKK/MK2 proved to be fairly low. Even though the export market potential for the “Chinese” Su30s outside of China turned out to be comparable with that for the Su30MKI family, if not slightly higher, the Russian Air Force has ordered only 20

Sukhoi

DEFENSE

such aircraft, and then only as a stopgap for lack of more advanced types. One other negative trait of Chinese military aviation orders is that Beijing invariably attempts to clone everything it buys. The Russian fighters were no exception. China reverse-engineered them and began producing domestic clones: the J-11B, the J-11BS, and the J-16. Incidentally, one possible explanation of China’s conservatism when it comes to drafting technical specifications for arms imports is that it only goes for the technology its industry is capable of cloning in the foreseeable future. To summarize, the Chinese contracts have been characterized by the absence of any positive effect on corporate development in the Russian aviation industry owing to the interspersed purchases, weak innovative impulse, con-

servative technical specifications, minimum-size batches, proclivity for cloning, as well as the low interest of the Russian Defense Ministry in the aircraft developed for China.

Politics vs commerce

The aforementioned characteristics are indicative of the commercial and industrial risks involved in Russian-Chinese military aerospace cooperation. These risks would be fairly acceptable back in the late 1990s and the early 2000s, when there was no domestic paying demand for new fighters in Russia and the Su-30MKI program had not yet reached the production phase. Back then, the Chinese orders helped keep the Komsomolsk-on-Amurbased KnAAPO production facility afloat and were instrumental in the emergence of a new innovative centre, the Sukhoi

Comparison of the innovation level and commercial potential of Russian export programs for India and China Indicator

Su-30MKI

Su-30MKK/MK2

INNOVATIVE IMPUlSE Primary innovations

thrust-vectoring engines, PESA radar, open architecture, glass cockpit, canard wing Third-country and customer- France, Israel, India supplied avionics components Innovation level at time of high development Innovation level in 2014 modern Further innovative Su-30MKI to be upgraded to development Sukhoi Super 30 standard

glass cockpit, upgraded basic avionics none low obsolete none

COMMERCIAl POTENTIAl Program duration in the interest of the launch customer Launch customer's orders Exports to third countries Total exported Ordered by Russian military Total aircraft ordered Possibility of new orders

18 years (1996-2014), program continues

six years (1999-2004)

272 Su-30MKI 62 (44 Su-30MKI(A) to Algeria, 18 Su-30MKM to Malaysia) 334 72 (60 Su-30SM to the Air Force, 12 to the Navy) 406 high (India)

100 (76 Su-30MKK, 24 Su-30MK2) 65 (24 to Vietnam, 24 to Venezuela, 11 to Indonesia, six to Uganda) 165 20 Su-30M2 185 unknown

EFFECT ON ThE RUSSIAN INDUSTRY Influence on the sector's corporate development

Irkut Corporation built around the KnAAPO motivated to resist the Su-30MKI program creation of the Sukhoi holding company

Ratio of original deliveries to locally-produced copies

50 direct deliveries, 222 built under license, including at least 50 to Phase 1 standard, i.e. virtually identical to direct deliveries Legitimate licensed production under the 2000, 2007 and 2012 contracts

IMPlEMENTATION

Legal status of local production

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

100 direct deliveries, unlicensed production of J-11BS and J-16 clones. In total, up to 100 examples of both types Unlicensed cloning

Design Bureau, which was already beginning to work on the Su-35 and the fifthgeneration fighter. However, in the current situation the balance of risks and gains associated with a hypothetical Chinese order for the Su35 appears to be quite different. On the one hand, such a contract would boost production volumes, theoretically (but not necessarily) lowering the unit cost. Seeing as the program was launched as Sukhoi’s own initiative, without a launch customer, it is important for the investors to ensure a return on their money. But the risks are also high. Particularly noteworthy is the extremely low number of aircraft China is planning to order, just 24 units. At the same time, Beijing is intent on ordering, as part of this hypothetical contract, an abnormally high number of 117S engines. The suspicion is that China’s actual agenda calls for gaining access to the Su-35’s two principal innovative technologies: the extremely powerful Irbis radar and the 117S powerplant. It should also be noted that the present scientific and technical potential of the Chinese industry is much higher now than it used to be 10 to 15 years ago, when that country cloned the Su-30 promptly and effectively. This is the central intrigue of the hypothetical Su-35 exports to China: how quickly, if at all, will the Chinese industry manage to clone the aircraft’s powerplant and radar? Nobody has any doubts that China will certainly attempt to reverse-engineer these technologies. If its engineers run into difficulties, then additional Su-35 orders are possible, as was the case with the Su-27SK/UBK in the 1990s. If they succeed, the Chinese Air Force will probably stop at the 24 original Russian aircraft, and the country’s aerospace industry will build more fighters as required. There is the danger of politics becoming the decisive factor in the decisionmaking process. The sharp worsening of relations with the West is prompting Russia to develop closer political ties with China, which means that political reasoning could prevail over long-term commercial goals and even considerations of military security.

DEFENSE

Su-35 expects export debut Maxim Pyadushkin he Sukhoi Su-35 multirole fighter will be a centerpiece of the Russian exposition at Airshow China this year. Following protracted negotiations, the sale of 24 such aircraft to China is expected to be finalized soon. According to Russian Deputy Prime Minister Dmitry Rogozin, the partners may sign the deal in November. “There will be a meeting of the joint [Russo-Chinese] commission on military technical cooperation in November. I think they will solve this issue there,” the InterfaxAVN news agency quoted Rogozin as saying shortly before the Zhuhai airshow. Rogozin, who is responsible for the defense industry in the Russian government, said he was unaware of any bottlenecks or unsolved issues, and that the partners were discussing “some pricing aspects” of the deal. This will be the first export success of the Su-35, whose only client so far has been the Russian Air Force. This single-seat generation 4++ fighter is a mid-life upgrade of the Su-27 Flanker. It combines the proven Flanker aerodynamics, more powerful NPO Saturn 117S engines with thrust vector control, and completely new digital onboard equipment, including the new Tikhomirov NIIP Irbis phased-array radar with an aerial target detection

range of up to 400 km. The first prototype took off in 2009, and the first production example commenced flight tests in 2011. The Russian Air Force has placed an order for 48 of the type, designated Su35S, including 10 airframes involved in the evaluation trials. The largest, 12ship production batch was delivered in February. In October, Sukhoi handed over three more aircraft. Deliveries to the Air Force are expected to be completed next year. The first military pilots to test the Su35S were from the 4th Center of Combat Application and Conversion of Frontline Aviation in Lipetsk, southern Russia. The first production aircraft were delivered to the service’s regular line unit, the 23rd fighter regiment in Komsomolsk-on-Amur in Russia’s Far East. This unit shares Dzemgi airfield with Sukhoi’s KnAAZ facility, which assembles Su-35s as well the T-50 prototypes for the fifth generation fighter. The Dzemgi regiment started intensive operational testing of the new fighters in March. Both the Lipetsk and Dzemgi pilots highly appreciated the new aircraft. “The Su-35 has comfortable flight information indication on colour multifunction displays, everything is clear, understandable and informative,” says Lt-Col Alexei Yanakidi, head of the flight safety department at the Lipetsk center. He adds

Fyodor Borisov / Transport-Photo.com

The military pilots from Dzemgi have started Su-35S operational testing in March

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

that the fighter’s convenient flight control system reduces the pilot’s workload: “The Su-35 can be controlled with just about two fingers.” Sukhoi engineers are making sure that the operational training proceeds smoothly. According to Igor Dyomin, the company’s chief designer and the head of the Su-35 program, the manufacturer keeps a technical team at Dzemgi along with the warranty for 3 years. Malfunction repairs at Dzemgi usually take not more than 3-5 hours, Dyomin notes. Sukhoi says the Su-35S is capable of delivering the entire range of airlaunched weapons in the Air Force arsenal, but this list can be further expanded. The manufacturer points out that the aircraft’s avionics suite is based on the open architecture principle, allowing for the addition of new equipment, including foreign-made components. China could become the first foreign customer for this type. Sukhoi’s parent company, the United Aircraft Corporation (UAC), views China and the Asia-Pacific region in general as one of its primary markets. The manufacturer hopes to sell a total of some 200 Su-35s. The UAC currently delivers other modifications of the Flanker family to domestic and export customers. This year the company expects to have handed over about 100 combat aircraft and 50 civilian airliners.

DEFENSE

Radar for naval helicopters Maxim Pyadushkin he Russian Navy will shortly expand its antisubmarine warfare (ASW) capabilities with the addition of new helicopters. The upgraded Kamov Ka27M should complete tests this fall, after which nearly the entire fleet of the country’s Ka-27PL ASW aircraft will be upgraded to the new standard. The upgraded helicopter features the Kopye-AA radar, developed by Phazotron-NIIR Corporation, which replaces the original Osminog search and sighting system. Phazotron-NIIR General Designer Yuri Guskov told Russia & CIS Observer that the Osminog-equipped Ka-27 only has a radar, whereas the Kopye-AA’s functions are much more versatile: “In fact, [the Kopye-AA] is more than a radar, it is a tactical command and control radar system.” The helicopter operates 100-150 km away from the mother ship, at altitudes between 4 and 5 km, giving it a visibility radius of 200 km. The new radar provides the Ka-27M with total situational awareness and allows the crew to transmit target data to ship-borne or groundbased command centres, Guskov says. According to him, the Kopye-AA has

an air-to-air mode: “The helicopter now detects aircraft flying at altitudes of 1,000 to 2,000 m, and transmits target information to the mother ship.” Detecting underwater targets remains a primary function of the new helicopter. “It is capable of detecting submarines, their conning towers, raised periscopes, and even water anomalies left by a passing submarine,” Guskov notes. The Ka27M is equipped with a sonar system and a magnetometric system, which detects concentrations of metal underwater. The helicopter establishes the submarine search area by dropping sonobuoys and then engages the enemy submarine with depth charges and torpedoes. Guskov says the Russian Navy is planning to upgrade around 50 Ka-27PL helicopters to Ka-27M standard at Kumertau Aviation Production Enterprise. The upgrade effort will be timed to the scheduled deep maintenance operations on these aircraft, which have been in service for 10-15 years. No decision has been made yet on similarly upgrading the Ka-27PS search-and-rescue version. The Ka-27 modernization effort is not the only helicopter program in which Phazotron-NIIR is involved. The corporation is the developer and supplier of the Arbalet millimeter-wave radar for

Leonid Faerberg / Transport-Photo.com

Nearly the entire fleet of the country’s Ka-27PL ASW aircraft will be upgraded with the new radar

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

the Russian Air Force’s Kamov Ka-52 gunship. “The Ka-52 equipped with our millimeter-wave radar and optical system is excellent in every respect, and can operate very successfully. The pilots who are learning to fly it are happy,” Guskov notes. The company is currently working to eliminate the radar’s teething problems: “We react to every comment, both from the line units and from the Progress plant (production enterprise in the town of Arsenyev, Russia’s Far East, which builds Ka-52s – editor).” In the light of the Russian defence industry plans to design a Ka-52K version, which could operate from helicopter carriers, Phazotron-NIIR has developed a dual-band radar for the type. “The centimetre-wave channel, with a range of 200 km, will enable the helicopter to use weapons against surface ships, while the millimeter-wave channel will be employed against ground targets,” Guskov says, adding that the Russian Defense Ministry has not yet confirmed its plans to finance the program. Nevertheless, Guskov is hopeful that his company’s radar developments will make their way onto new Russian helicopter designs. Phazotron-NIIR became the first Russian company to create and test active electronically scanned array (AESA) radar, the ZhukAE, which is used on the MiG-35 fighter. The corporation is currently working to develop a 3D AESA radar for unmanned aerial vehicles. “I would like to create an AESA for helicopters, even though it would be an expensive solution,” Guskov remarks. “The principal advantage of the AESA, as I had a chance to learn first-hand back in 2010 with the MiG-35, is its high reliability.” According to Guskov, China is manifesting an interest in Phazotron-NIIR’s 3D-technology experience. Talks with leading Chinese radar developers are expected to take place at the Airshow China 2014 in Zhuhai.

DEFENSE

Maxim Pyadushkin ussia continues work to develop a new heavy transport aircraft. In early October, the first production Ilyushin Il76MD-90A airframe completed its maiden flight at the Ulyanovsk-based AviastarSP factory, a subsidiary of the United Aircraft Corporation (UAC). This profoundly modernized version of the Il-76MD baseline features greater payload capacity, longer range and reduced fuel burn. The Il-76MD-90A program, launched in 2007, called for production of the upgraded transports to be organized in Russia. Prior to that, the Il-76 family had been built at the Tashkent TAPOiCh factory in Uzbekistan. The upgraded Il-76 became the first Russian freighter to get a new KotlinNovator glass cockpit. All information related to the performance of the aircraft’s systems and equipment is fed to LCD displays at the pilots’ workstations. The new avionics suite made it possible to reduce the crew headcount from five to three. The Il-76MD-90A has a reinforced wing and upgraded landing gear, and is fitted with new, more powerful PS90A-76 engines in lieu of the original D-30KPs. The new

wing is made from long components, which reduces the wing weight by 2 t and prolongs the fuselage life by 15%. Thanks to these improvements, the new aircraft can carry 60 t of payload, or 10 t more than the baseline. Its range was increased by 27% to 5,000 km, and fuel burn reduced by 18%. The first flight of the Il76MD-90A prototype took place in November 2012, followed by the signing of the first contract. The Russian Defense Ministry ordered 39 airplanes, worth 140 billion rubles, with deliveries through 2018. The aircraft completed the factory flight testing program in 2013, after which official joint tests commenced in accordance with the Defense Ministry’s program. Aviastar-SP assembled the first production airframe in June 2014 and currently has over 10 aircraft in its assembly shops at various stages of completion. The first delivery, however, will not be to the Russian Air Force. In August this year, the UAC signed an agreement under which the first production aircraft will go to its other subsidiary, the Taganrog-based Beriev company, to be used as the platform for the A-100 airborne early warning system (AEWS) prototype. The handover ceremony will take place after all the tests have

Leonid Faerberg / Transport-Photo.com

Renovated Il-76 enters series production

The Il-76MD-90A can carry 60 t of payload

been completed, AviastarSP says. Aviastar-SP general director Sergey Dementyev has said in an interview to the Rossiyskaya Gazeta daily that two more aircraft from the initial batch should be completed by year-end: “Our current objective is to reach a production rate of 18 aircraft per year.” Apart from the transport role, the Il-76 family has been historically used for a variety of specialized mission. The Il-76MD, for example, serves as the platform for the Russian Air Force A50 AEWS aircraft. The same modification was selected as the platform for the Indian Air Force A-50EI AEWS aircraft with the Israeli ELTA/IAI MSA system. The upgraded Il-76 will serve as the basis for the Il-78M-90A air-refuelling tanker. Dementyev says the first such aircraft is being assembled and should be completed in 2015. The beginning of Il76MD-90A production in

Russia opens up prospects for civilian contracts. At present, the Russian freight specialist Volga-Dnepr uses five Il-76TD-90VD aircraft for charter operations. These airplanes, which are close in performance to the Il76MD-90A, were built at the Tashkent factory, which no longer exists. Earlier, the Il76MD-90A development team predicted that a civilian version might be developed by 2015. There may also be foreign orders for the modernized Il-76, particularly from China. The Chinese Air Force operates 10 Il-76 military transports purchased back in the 1990s, plus four Il-78 tankers. China has also bought four of the type for its own KL-2000 AEWS solution. In 2005, Beijing ordered 34 Il-76s from Russia for a total sum of $1 billion, as well as four Il-78s worth around $120 million. These aircraft should have been built in Tashkent, but the contract never came into force.

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

AEROSPACE INDUSTRY

Full support

Russian banks extend more loans to back the Sukhoi Superjet 100 program Maxim Pyadushkin espite the aggravating economic problems, the Russian government seems to be keen on supporting the national civil aircraft industry, including its flagship product, the Sukhoi Superjet 100 regional jet manufactured by Sukhoi Civil Aircraft Company (SCAC) in partnership with Italy’s Alenia Aermacchi. The SCAC’s debt burden has recently been mitigated by loans from state-owned banks. This will enable the manufacturer to continue deliveries to the existing customers and develop new SSJ 100 modification. At the end of September, the supervisory board of the Russian state-owned bank Vnesheconombank (VEB) approved a loan worth 18 billion rubles (about $450 million) to its subsidiary lessor VEB-leasing in support of the delivery of 16 SSJ 100 airliners to Russian carriers. VEB Chairman Vladimir Dmitriev explained

that most of these aircraft would go to the country’s flagship carrier Aeroflot. Earlier, Dmitriev acknowledged that the Ukraine-related sanctions imposed by the EU on a number of Russian financial institutions, including his bank, would negatively affect the Russian leasing market. Another state-owned financial institution, Sberbank, has also supported the SSJ 100 program. The shareholders of the SCAC’ parent company Sukhoi in September approved two deals with Sberbank in which the company would act as the guarantor for $730 million’s worth in loans to be extended to the SCAC. The loans are strictly tied to the manufacturing and delivery schedules. The first loan of $130 million will be extended through April 30, 2015, to finance the production of the second 10-ship batch in full specification for Aeroflot. The carrier, which is the program’s launch customer, has an order for 30, but the first 10 airliners were delivered in the so-called light configuration. Since 2013, Aeroflot

Leonid Faerberg / Transport-Photo.com

SSJ100 operated by Center-South charter carrier at Moscow Sheremetyevo airport

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

has been replacing these with the more sophisticated variant, which features an upgraded Flight Management System (FMS), a weather radar equipped with windshear detection mode, and improved interiors. The 10th full-specification aircraft was delivered in June 2014. The SCAC has since managed to find new customers for some of the initial aircraft batch. One airframe was delivered to the Russian Interior Ministry, another two were leased out to the corporate charter operator Center-South. A further two airliners, along with the airframe assembled for the now-defunct carrier Armavia, were briefly used by the Moskovia airline, which folded this September due to financial problems. Some of the ex-Moskovia aircraft might be taken by another Russian carrier, Red Wings, which agreed in October to lease three SSJ 100s directly from the SCAC. According to the airline, the first two airframes could begin revenue flights by year-end, with the third one joining the Red Wings fleet in early 2015.

AEROSPACE INDUSTRY

The second deal between Sukhoi and Sberbank calls for the opening of a credit line to a maximum limit of $600 million to finance SSJ 100 production and help restructure the SCAC debt. The manufacturer reported a net loss of 9.9 billion rubles (about $320 million) for 2013, and 4.1 billion rubles in loss for the first six month of this year. According to the agreement with Sberbank, the SCAC’ access to the credit line will depend on the progress

rent SSJ 100 Basic and LR models is 103. In accordance with the agreement, the stretched variant has to make its first flight before July 1, 2017, and to achieve Russian certification a year later. EASA certification is expected to be completed by the beginning of 2019. Earlier, representatives of the SCAC and its parent company United Aircraft Corporation considered the development of a next-generation Superjet model that could carry up to 130 passengers and fill

SJI

Interjet demonstrates the shortest turnaround time among all SSJ100 operators

with SSJ 100 sales and deliveries. The manufacturer should deliver 36 aircraft in 2014, 45 in 2015, 56 in 2016, and 60 each in 2017 and 2018, not counting the airframes returned from Aeroflot. It also has to maintain its order backlog at a minimum of 80 aircraft in 2015 and 85 aircraft annually in 2016-19. The SCAC has received about 182 firm orders for the SSJ 100 by now. Of this number, 45 have already been delivered: five in 2011, eight in 2012, and 14 in 2013. Since the beginning of 2014, the SCAC has delivered 18 airframes. The latest one was the 11th aircraft of the type for the Mexican carrier Interjet, delivered at the end of October. The current production rates will enable SCAC to manufacture 50 airframes in 2015, while the maximum production capacity of its assembly facility in Komsomolsk-on-Amur stands at 60 airframes per year. Another condition of Sberbank’s loan is for the SCAC to develop a 115seat stretch modification, provisionally dubbed SSJ-SV. The maximum alleconomy passenger capacity of the cur12

the gap between the SSJ 100 program and the future MS-21 narrowbody family. These plans have since been suspended. Yet another condition for the SCAC is to clear almost $700 million in debt to VTB bank. To do so, Sukhoi has agreed to purchase an additional issue of shares from the SCAC worth 36 billion rubles. Since the move will bring Sukhoi’s interest in the SCAC upwards of the original 75% minus one share, the foreign partner Alenia Aermacchi will add at least $390 million to the SCAC charter capital by the end of 2017 to keep its interest at 25% minus one share. The SSJ 100 marketing campaign could benefit from success stories of current operators. The type is currently in operation both in Russia and abroad, and some carriers continue to report improvements in the operational results. Interjet marked the first year of SSJ 100 operations in September. The airline reported that its aircraft had logged more than 12,000 flight hours performing about 11,400 flights over the 12 months. The maximum daily flying time achieved in Mexico for the

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

type exceeded 11 hours, with the average sector length of 1 hour 3 minutes. The Mexican airline uses its SSJ 100s on the shortest routes of all the current operators of the type. According to the data released by the SCAC, Aeroflot’s Superjets log 1 hours 35 minutes per flight on average. The carrier’s maximum flight time for a single day has up to now amounted to 15 hours 27 minutes. From September 2013 to the end of August 2014, Aeroflot’s 10 SSJ 100s performed 8,336 flights for a combined flight time of 13,234 hours. Another Russian SSJ 100 operator, the regional carrier Yakutia, has achieved a maximum daily flight time of 16 hours 8 minutes. Over the past 12 month, its two Superjets have performed a total of 1,503 flights, spending 3,855 hours in the air. The average sector length stood at around 2.5 hours. Yet another operator, Moskovia, which has three SSJ 100s, logged 2,872 flight hours in 1,097 cycles for the same period. The average flight time amounted to some 2.5 hours, with the maximum recorded time in flight within one day stood at 15 hours. Besides the shortest routes flown, Interjet is demonstrating the shortest turnaround times of 25 minutes. According to SCAC officials, the Interjet pilots achieve this by getting their return flight assignments, including information on the commercial load, the number of passengers, and the weather conditions, during the outbound flights. This enables the crew to make necessary adjustments faster, and to stay on board while the aircraft is being readied for the return trip. Another method of cutting the turnaround times is for passengers to disembark and board via two sets of airstairs, and for the refueling operations to be performed using two fuelling points. The SCAC hopes to turn the Interjet experience into a marketable success story for the Western markets. The Mexican airline has an order for 20 of the type, with an option for 10 more. Its aircraft are customized by the Russian-Italian joint venture Superjet International, also provides maintenance and training support for the airline.

MARKET SUPPLEMENT

Advanced simulators: integration and innovative technology CKT Company has been designing and manufacturing training equipment for aviation specialists since 1992. Over the years we have created a wide range of assets, including full-flight simulators, cockpit procedures trainers, visualisation and motion systems, cabin emergency and evacuation trainers, test rigs for aircraft engineers, and aircraft system simulators. All our products are used successfully by Russian airlines and aerospace manufacturers. In the past several years we have partnered with a number of aircraft manufacturers and design houses (Irkut Corporation, Tupolev, Ilyushin, GosNIIAS, NIIAO Institute of Aircraft Equipment, Moscow Institute of Electromechanics and Automatics, VASO, Novosibirsk Aircraft Production Association, Antonov, etc.) to develop full-flight simulators for a range of aircraft, including the Sukhoi Su-24, Ilyushin Il-86, and Tupolev Tu-154M (Level C), for the Il-96-300 (Level C), for the Antonov An-124-100 (Level D). We also developed cockpit procedures simulators for the Il-86, Tu-154M, Il-96300, An-124-100, Tu-204SM and Irkut MC-21, as well as system simulators for the An-148. CKT Company has been contracted by Irkut Corporation to develop a line of flight training devices for MC21 pilots, cabin crew and engineering personnel. There will be a full-flight

simulator, a cockpit procedures simulator, cabin emergency and evacuation trainers, and modern training classes. Our products comply with the international standards. In their pursuit of developing perfect software, CKT Company engineers use advanced components supplied by leading international manufacturers. Our Il-96-300 and An-124-100 simulators have a Bosch-Rexroth motion system with six degrees of freedom. Our MC-21 and Tu-204SM full-flight simulators incorporate an electric motion system by Moog Inc. and the Rockwell Collins EP-8000 image generator. Our specialists actively introduce innovative technology in order to further improve the quality of our products and make high-quality training solutions available to aviation personnel. Our new-generation programmable interfaces are intended for hardware and software systems (HSS) that work with flight models. These interfaces, which bring the computing system and simulation equipment together, were first used in our NPS-204SM piloting stand, Il-114 FFS and Tu-204SM CPT. We have also created a unified programming environment for flight and systems models (first used with our Il-114 FFS and Tu-204SM CPT). The high quality of our products is ensured by the use of perfect software and cutting-edge components supplied by leading global manufacturers. CKT Company this year completed development of a Tu-204SM simulator, which was located at OEM Tupolevâ&#x20AC;&#x2122;s facilities in the town of Zhukovsky, Moscow Region. Work continues on a full-flight simulator for the MC-21 airliner, which will be located at the Aeroflot training centre. CKT Company takes pride in its fullflight simulators, whose high degree of realism, effectiveness and reliability

Full Flight Simulator Research and Production Company (CKT Company, Ltd) manufactures full-flight simulators and flight training devices for airline training centres and aviation enterprises. We develop and build our simulators with the use of advanced customer-tailored global technologies. have gained them massive popularity with airlines. We have cooperation agreements with several world-leading simulation specialists, including SIM-Industries (a Lockheed Martin Company) and Rockwell Collins Simulation & Training Solutions. The technologies we use comply with the ICAO doc. 9625 requirements and ensure the highest quality of simulator training. What makes our company stand out is our profound understanding of what airlines, training centres and manufacturers look for when it comes to simulation-based training. We do our best to accommodate all requirements of our customers, invariably providing them with quality pilot training. Chief designer Oleg Yefimov CKT Company 5, Lodochnaya Street, Building 1 Moscow, 125363, Russian Federation E-mail: info@ckt.aero www.ckt.aero

AEROSPACE INDUSTRY

Mi-38 helicopter approaching certification Vanetin Makov, Maxim Pyadushkin n October 16, Russian Helicopters successfully conducted the first flight of the Mil Mi-38 medium helicopter’s pre-production prototype. The 10-minute flight took place at the Kazan Helicopters facility, and the prototype was later sent to Mil Moscow Helicopter Plant to be readied for the certification trials. The helicopter’s certification is expected to be attained in 2015. Kazan Helicopters CEO Vadim Ligay stated earlier this year that his facility had already started production of the fuselages for the first production rotorcraft. The Mi-38 development program was launched in the early 1980s. The aircraft was initially planned as a replacement for the Mi-8/17 medium-lift family of helicopters. Now this 15,600-kg MTOW machine will fill the empty niche between the upgraded Mi-8/17 and the giant Mi-26 transport. With a cruising speed of 285 km/h, it will be able to carry up to 30 passengers, or 6,000 kg of cargo inside the cabin, or 7,000 kg on the external sling. According to Russian Helicopters, the first orders for this type may come from government customers.

Russian Helicopters

Russian Helicopters says, the configuration of the latest, fourth Mi-38 prototype is the closest to the production variant and features a new shock-resistant fuel system and larger cabin windows. Whereas the first two Mi-38 prototypes are powered by Pratt & Whitney PW127 engines, the third and fourth airframes are equipped with a pair of Russian Klimov TV7-117V turboshafts. The powerplant’s certification is planned for the end of 2014. The fourth prototype is fitted with the IBKO-38 Integrated Airborne Avionics Set designed by Russia’s Transas Aviation company. This small-sized, lightweight avionics suite combines precision satellite navigation with reconfigurable electronic displays, an advanced terrain awareness and warning system (TAWS), and redundant mission-critical systems and circuits. “Capitalizing on many years of experience in supplying integrated avionics for the Russian Mil family of helicopters, including the tried and tested IBKV-17 for the Mil-17, Transas created a comprehensive, flexible, all-digital solution, significantly expanding the crew’s capabilities to perform even the most challenging tasks,” Transas Aviation’s General Director Vadim Smirnov ex-

Fourth Mi-38 prototype is the closest to the production variant

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

plained to Russia & CIS Observer. According to him, the IBKO-38 is successfully performing in all the tests and trials of the Mi-38 prototypes. Apart from the avionics, Transas Aviation will contribute to the Mi-38 program with the development of a flight simulator for the type. “We are certainly well prepared to support the new Mil-38 helicopter with the most up-to-date flight simulators, and are looking forward to working with the aircraft manufacturer, as well as with largest potential operators, in order to meet the demand for the most efficient crew training and preparation for the new helicopter, where a full-flight simulator is truly the diamond in the crown of pilot training,” said Smirnov. This will not be the first experience in this field for the Russian designer. Transas’ simulation solutions cover nearly all the types of Russian helicopters, ranging from the best-selling Mi-8/17 family to the world’s largest Mi-26 and including the world’s first and only coaxial-rotor helicopter flight simulator for the Kamov Ka-32. Smirnov stresses that Transas is the world’s most experienced manufacturer of helicopter flight simulators for the Mil family, with a total of over 50 units produced to date, including 11 Level D full-flight simulators. Transas Aviation also supplies a wide range of full-flight and fixed-base simulators for Western- and Russian-designed fixed-wing airplanes, including for the Airbus A320, Boeing 737, Tupolev Tu204 and Antonov An-148. “Aviation simulators form a very significant part of our aviation business, accounting for approximately 60% of our annual turnover,” Smirnov notes. Recently, Transas has made a significant step to enter the market for mission-critical equipment with a heads-up display and the TSL-1600 innovative searchlight.

AEROSPACE INDUSTRY

Russia and China continue to develop a new airliner together Valentin Makov ussia’s United Aircraft Corporation (UAC) and its Chinese counterpart, Commercial Aircraft Corporation of China (COMAC), are looking to complete a feasibility study this fall for the joint development of a new widebody commercial airliner. The partners will then present its results to the governments of the two countries, the Russian daily Rossiyskaya Gazeta quoted UAC head Mikhail Pogosyan as saying in early October. Pogosyan said that the technical requirements for the new airliner would be finalized by mid2015. The major suppliers for this Russo-Chinese program will be selected around the same time.

Russo-Chinese joint widebody aircraft may enter the market in 2023-2025

Leonid Faerberg / Transport-Photo.com

The joint development of the future widebody aircraft was officially launched in May this year, when Pogosyan and the chairman of the COMAC board, Jin Zhuanglong, signed a memorandum of cooperation on this program during Russian President Vladimir Putin’s visit to Shanghai. “The document signed here is the result of two years of joint work by Russian and Chinese specialists,” Pogosyan said during the ceremony, adding that the joint program was promoting the two countries’ aerospace cooperation to a new level. The new aircraft is expected to carry 250-300 passengers, and will be used on medium-haul routes of between 6,500 and 7,400 km. The initial powerplant supplier may be selected from among Rolls-Royce, General Electric and Pratt&Whitney. Some sources suggest that China’s AVIC Commercial Aircraft Engines may develop a dedicated powerplant at a later stage. The new widebody airliner will target the Russian and Chinese markets, and will also be marketed to third countries. In February this year, Pogosyan mentioned that the aircraft was expected to enter the market in 2023-2025. The UAC estimated at the time that the capacity of the global widebody segment would amount to 8,000 airliners through 2033, including 1,000 airframes in China. The new widebody airliner will complement the product range of both manufacturers. The UAC currently produces the Sukhoi Superjet 100 regional jet and is in the process of developing the new MC-21 narrowbody aircraft, expected to enter service in 2017. The Russian company’s only widebody product is represented by the ageing Ilyushin Il-96 family, whose production

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

is now limited to several airframes per year under the government order. COMAC is still working on its ARJ-21 regional program, while simultaneously developing the C919 single-aisle aircraft, which is expected to hit the market in 2016. This joint program with China is of political importance to Russia at the moment, as Moscow fears that the US and EU sanctions imposed over the crisis in Ukraine are capable of throttling all cooperation with the Western aerospace industry. Russia and China have a long track record of cooperation in the military aviation segment, but their partnership on civil aviation projects is still in its infancy. In order to facilitate the joint development effort, Russia and China signed a cooperation agreement on aircraft certification in mid-October. Representatives of Russia’s aviation certification authority, the Interstate Aviation Committee, explain that this document “will contribute to further cooperation on the development, production, and joint operation of aircraft.” Prior to the signing, the two countries’ aviation authorities had been exchanging information on their certification procedures for fixed-wing aircraft, helicopters, and aero engines. Another joint project to potentially benefit from this certification cooperation agreement is the development of a future heavy helicopter under the Advanced Heavy Lifter program, which has been discussed between the Russian Helicopters holding company and China’s company Avicopter since 2008. Earlier this year, Russian Helicopters CEO Alexander Mikheev said that the new rotorcraft would incorporate the technology used in the Mil Mi-26T heavy transport model.

AIR TRANSPORT

The unpredictable lease market

Leonid Faerberg / Transport-Photo.com

The tense political situation is affecting Russian carriers and aircraft lessors

Alexey Sinitsky early all of the commercial airliners in Russia are operated under lease agreements, with 65% of the aircraft leased from foreign companies. The current political situation, the Western sanctions against Russia, the loss of access to cheap long-term Western loans, and other factors are all making the future of the Russian aircraft lease market so uncertain that lessors decline to give official comments. This uncertainty stems from both political and economic factors. Foreign lessors say that, prior to the downing of the Malaysia Airlines Boeing 777 over Ukraine in July this year, the situation remained relatively benign: even though virtually no contracts were being signed with new clients or for new aircraft, work continued with existing customers under lease contracts for pre-owned airplanes. The only exception was Aeroflot’s subsidiary Dobrolet, which found itself on the EU sanctions list in early August. The European lessors immediately repossessed Dobrolet’s two Boeing 737-800s.

In a sense, the Western lease companies tended to perceive the situation in Russia as an inevitability they would have to learn to live with. It all changed after Flight MH17 crashed outside Donetsk. The prevailing mood now is to gradually discontinue all business activity in Russia, for the exception of the on-going contracts with reliable clients. All foreign lessors present in Russia can be ascribed to one of three different categories. Major businesses, each having around 100 airplanes operated by Russian carriers, are more inclined to leave, i.e. they are not planning to extend the current lease agreements beyond their expiration date. Mediumsized lessors, each with 10 to 15 aircraft let to different Russian airlines, are playing a waiting game and might consider extending their current contracts on a case-by-case basis. It is only the smaller companies, particularly those from Asian countries that are optimistic about the potential opportunity to expand to the Russian market. This categorization is, of course, very much notional: the behavior of each lessor is more complex in real life. Whatever the case, early contract severances with airlines are unlike-

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

ly, unless something extraordinary happens. According to one lessor, if a preowned airliner worth $30–40 million gets returned early, the leasing company will be left dealing with an overhead of up to $1 million, which may effectively cancel out the entire lifetime gain to be had from leasing that aircraft. Foreign lessors are also beginning to run into problems when securing funding for Russian lease contracts. Quite a lot of banks tend to view aircraft lease agreements as a variety of long-term loans, whereas the Western sanctions only permit short-term borrowings for up to 90 days. This is why existing contracts sometimes need to be redrawn in the name of special-purpose ventures (SPV). This scenario is not always deemed expedient because of the additional expenses it implies. Contracts funded against the guarantees of export agencies like the US Ex-Im Bank are also in the risk zone. Should the guarantees get recalled, the cost of these projects will grow sharply, potentially affecting their profitability. Lease agreements involving aircraft parts merit special attention. This segment is relatively small in Russia be-

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cause engines are normally considered to be part and parcel of the aircraft. On the other hand, powerplants are much more expendable than airframes. Therefore, companies specializing in the leasing of aero engines are more moti-

indeed have a negative effect on the Russian leasing market came from Vladimir Dmitriev, chairman of Vnesheconombank (VEB). Lessors reveal little more than that off the record. According to them, all market players

Around 400 aircraft on the Russian market have been leased from foreign companies vated to wait for the end of their current contracts before turning to other, much more promising regions of the world. This is exactly the problem of the Russian aviation market, which was only of interest for as long as its growth rate remained in double digits. Its other appealing trait was that passenger numbers grew with the growth of oil prices, as distinct from the Western air transport market. It is different now, though: according to attendees of the ISTAT conference held in Istanbul in September this year, which is the world’s premier forum of companies involved in the leasing and funding of civil aviation, everyone’s interest is currently focused on China, India and other Asian countries, and Russia is all but forgotten.

Outlook from Russia

One of the few official acknowledgments that the Western sanctions may

are bracing for more economic sanctions, the rouble’s depreciation, further growth in the cost of funding (Western banks used to extend loans at 3–6% interest per year, whereas Russian ones charge at least 8–10%), etc. The opportunities of working with a Russian bank will be considerably reduced if it ends up on the Western blacklist. The aviation financing market mostly uses the US dollar as its currency of choice, so the costs are understandably growing. For example, a 1% increase in the lease interest rate for a new narrowbody (an Airbus A320 or a Boeing 737-800) adds an extra $500,000 per year to the lessee’s payments. A 10% growth of the dollar-ruble exchange rate increases the ruble equivalent of the lease payments for narrowbodies by around 15 million rubles per year. This, in turn, affects the airline’s profitability and may force it to default on its lease obligations.

Leonid Faerberg / Transport-Photo.com

The European lessors immediately repossessed Dobrolet’s two Boeing 737-800s after the airline was put into the EU sanctions list

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

The sanctions against the Russian financial sector are also affecting the leasing companies’ ability to restructure their existing contracts, which used to be financed with money taken from the EU and US markets. In other words, the cost of money for lessors is growing, forcing them to revise their contracts with carriers rather than suffering losses. The fact that Russian lessors have a huge share of pre-owned aircraft operated under finance lease agreements implies a high probability of losses, because such airliners will be difficult to impossible to sell. The fact that these companies have no aircraft re-marketing skills does not help the situation either. Lessors are skeptical of the suggestion that they will be able to quickly reorient their business to Asia. The Asian market is booming, and so is in great need of capital. Besides, Asia itself seriously depends on borrowings, which makes it controllable by the more powerful creditors, i.e. the USA and the EU. According to different estimates, around 400 aircraft on the Russian market have been borrowed from foreign companies under operating lease contracts. The entire Chinese lease market will not be enough to digest this figure. For example, China’s largest lessor, ICBC Financial Leasing Co., has a portfolio of around 180 aircraft, while BOC Aviation has some 150. In addition, Chinese lessors are normally extra cautious of the risks associated with the Russian market; so far their presence in Russia has been quite limited. The sanctions business is certainly a two-way street. A total ban on aircraft deliveries to Russia would lose Airbus and Boeing around 20–30 aircraft sales each annually, or some 8% of their respective backlogs. This figure is quite significant, meaning that neither the manufacturers nor the Western governments would be happy with such a development. This is why Russian lessors maintain some modest optimism, even though they do admit that the market is in for a recession and that no new major contracts are likely to materialize in the near future.

Regional problems Government subsidies for regional aircraft acquisitions and the development of regional passenger operations have allowed Russian carriers to resume services not only across the European portion of the country but also in Siberia and the Far East, where demand for air transport is objectively greater due to the underdeveloped ground transport network. however, the legislative framework for subsidizing the air transport industry remains imperfect, implying additional problems for airlines and regional authorities alike.

Leonid Faerberg / Transport-Photo.com

Russian regional operators look for the replacement of the ageing Antonov An-24 turboprops

Polina Zvereva ne of the problems is that each region has its own regulations which govern the extension of subsidies to airlines. If a carrier works in different regions simultaneously, or operates flights between neighbouring regions, calculating the subsidies it is entitled to may prove a difficult task. The Irkutskbased airline Angara is well aware of these difficulties. CEO Anatoly Yurtayev has told: “We receive around 176 million rubles [$4.15 million at the current exchange rate] a year from regional budgets. We operate fixed- and rotary-wing services in the Republic of Altay, in Transbaikal Territory, and in Irkutsk Region. Every region has its own approach to subsidies: some include VAT, others do not. In our opinion, the regional regulations have to be harmonized.”

An even greater problem is connected to the airlines fleet renovation needs. Operators are unanimous that Russia has to come up with a domestic design to replace the ageing Antonov An-24s. Yurtayev says there are two sides to the fleet modernization problem in this capacity segment. First, there is the need for an aircraft capable to connecting regional centers with smaller regional towns (meaning a range up to 500 km). Yurtayev believes this market is gradually beginning to get saturated, now that carriers are buying Czech L-410s and Swiss Pilatus PC-6 TurboPorters. Polar Airlines already operates the latter type. However, the company’s CEO Alexander Tarasov notes that even though the government subsidizes the acquisition of aircraft, the corresponding resolution it does not address the problem of maintenance. This is a serious issue for Siberian and Far Eastern carriers, since the OEMs and MRO

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providers for foreign types are situated in Europe, quite a long way away from their regions of operation. Yet another serious problem, Yurtayev says, is observed in the capacity segment currently served by the An24. Two approaches are possible here. The first one is to build quality airfields, in which case the carriers will switch to other aircraft models within a year or two. “We realize, however, that airport infrastructure requires colossal investments. The existing airports cannot be overhauled overnight,” Yurtayev says. “This is why we urgently need to develop an all-new aircraft similar to the An24, a low-maintenance airliner capable of operating from unpaved runways. Upgrades to the existing park are fine, but I as the head of an air carrier would like to see a new advanced airplane.” At present, the only ready-off-theshelf equivalent to the An-24 is the Chinese MA-60, a profoundly modernized version of the Soviet type, with new engines and new avionics. There are two problems though, Tarasov says. First, the MA-60 is essentially an An24 and so cannot pass for a new airplane. Second, negotiating deliveries with Chinese manufacturers often proves a difficult task. This is why cooperation with China is unlikely to be chosen as the best solution. The project to assemble Canadian Q400 turboprops in Russia has been suspended, reportedly due to differences between Bombardier and Russia’s Rostec Corporation on key aspects of cooperation and also because of the complicated political and economic situation. But even if the program did get under way, this type would be unable to replace the An-24. The Q400 carries more passengers (around 70); such capacity is often superfluous on Russian regional routes. Besides, the Canadian aircraft cannot land at all Russian regional airfields.

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

New challenges for Russian air transport Maxim Pyadushkin ussian commercial aviation faces serious challenges caused by the country’s deteriorating economic situation and political tensions over the crisis in Ukraine. As the double-digit growth demonstrated in the previous decade appears to be over, the top carriers are exploring ways to optimize costs and capacity. Russian airlines have almost tripled the number of passengers carried annually since 2004, from 33.7 million to 84.6 million in 2013, but now the growth pace is slowing down. For the first three quarters of this year, the country’s airlines carried 72.9 million passengers, up 11.8% on the same period in 2013. Aeroflot continued to lead with 17.8 million passengers carried, or up 13.4% year-on-year. Transaero ranked second with 10.4 million; UTair Aviation came third with 6.9 million people. These two carriers demonstrated the slowest growth of the top five Russian airlines, 6.4% and 9.3% respectively. S7 Airlines saw its passenger numbers grow by 14.6% in the first nine months of the year, reaching 6.1 million. The figures for Ural Airlines were 18.3% and 4 million. These five companies together accounted for 62.3%

of all Russian passengers carried, the Federal Air Transport Agency reports. Detailed statistics provided by the agency corroborates earlier reports to the effect that the growth in passenger traffic was mainly observed on domestic routes (up 19.1% to 37.4 million passengers), while international services flights demonstrated less pronounced dynamics (up 5.6% to 32.7 million). One year ago, the situation was quite the opposite, with an 18% year-on-year increase in international passenger numbers and only 10% for domestic flights. The overall passenger load factor grew by 0.3 percentage points in the first nine month of 2014, reaching 81.1%, mainly due to the growing numbers of domestic passengers (up by 1.5 percentage points to 78%). The load factor on international routes remained at 83.1%, but the yearon-year comparison indicates that it decreased by 0.2 percentage points. This shift in the industry’s trend is confirmed by the individual performance results of the largest carriers. For example, Aeroflot’s statistics for January-August 2014 show a 31.4% increase in passengers carried domestically, to 7.3 million, while its international traffic increased only by 1.9% to reach 8.3 million passengers. Transaero demonstrated the greatest growth in domestic passenger traffic in the

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

first eight months of this year, up 37.9% to 2.6 million people. Internationally, the airline carried 3.8 million passengers, indicating a slight decrease year-on-year. Industry actors forecast a continuous period of weak demand for international air services. Transaero’s Chief Executive Director Alexander Pleshakov predicts that overall international traffic may shrink by 10-15% through April 2015. In his recent presentation for a Russian association of tourist operators, Pleshakov blamed the slow demand on the weakening ruble, which particularly affects services to European and US destinations. He confirmed that Transaero’s traffic between Russia and Ukraine dropped by 60% in the first eight months of the year, while other CIS destinations like Kazakhstan, Uzbekistan, and Armenia, demonstrated an upwards trends. Although many local routes, especially those connecting central Russia to the country’s Far East, western enclave of Kaliningrad and Crimea are subsidized by the government, this does not seem to be enough to keep the demand up. Pleshakov expects the growth of domestic traffic to slow down to 3-5% during the winter season of 2014/15. “In general, there will be no double-digit growth on the [air transport] market,” he notes.

Leonid Faerberg / Transport-Photo.com

AIR TRANSPORT

Top 20 Russian airlines by passengers carried and passenger kilometers flown in January-September 2014 Passengers carried Ranking

Passengers carried, thousand

Aeroflot 1 Transaero 2 UTair 3 S7 Airlines 4 Ural Airlines 5 Rossiya Airlines 6 NordWind 7 Orenair 8 Globus 9 Donavia 10 VIM-Avia 11 Yamal 12 Metrojet (Kolavia) 13 Ikar 14 NordStar 15 I Fly 16 Yakutia Airlines 17 Avrora 18 Red Wings 19 UTair Express 20 Source: Russia’s Federal Air Transport Agency

The shrinking demand, especially on international routes, is affecting the financial health of some carriers. According to the head of Russia’s Association of Air Transport Operators Vladimir Tasun, it is international operations that bring Russian airlines most of their revenues, while domestic services remain largely unprofitable. Tasun points out that in 2013, the domestic operations of all Russian carriers combined generated 19 billion rubles’ (about $450 million under the current exchange rate) worth of losses, only partially compensated by the 14 billion rubles’ worth of profits on international routes. The situation will get even worse this year, he warns. Aeroflot reported a net loss of 1.9 billion rubles under the International Financial Reporting Standards for the first half of 2014, the company’s first such incident in the past five years. “Slower economic growth rates in Russia, combined with significant oneoff factors, had a negative effect on the group’s financial results in the first half of 2014,” explained Shamil Kurmashov, Aeroflot’s deputy CEO for finance. The airline’s pilot low-fares project, the subsidiary Dobrolet, fell victim to Russia’s deteriorating relations with the West. The new carrier was forced to cease operations several months after

17,833 10,453 6,943 6,135 4,052 3,969 3,665 2,500 1,584 1,361 1,227 1,205 1,129 1,009 918 879 801 795 719 615

Change to JanuarySeptember 2013, %

Ranking

+13.4 +6.4 +9.3 +14.6 +18.3 +10.6 +38.0 -1.8 -8.1 +35.5 +10.3 +13.4 +23.4 by eight times -6.6 +1.1 -6.6 +289.6 +154.5 +176.4

1 2 3 4 5 7 6 8 10 17 13 14 11 9 15 12 16 18 19 20

its launch because of the sanctions imposed by the EU to punish it for operating flights to Crimea. Earlier, Aeroflot CEO Vitaly Savelyev complained about weakening forward booking statistics and assumed that this might affect the company’s fleet expansion plans. Russia’s flag carrier phased out Ilyushin Il-96 and Boeing 767-300ER widebody airliners this year, and postponed the delivery schedule of its new 787s and A350s. Nevertheless, Aeroflot has not abandoned its low-fares experi-

Passenger km, thousand 50,728,396 36,460,314 16,065,420 12,040,180 10,505,165 7,792,315 9,967,631 7,240,418 4,181,247 1,936,983 2,607,334 2,466,507 3,328,454 4,867,672 2,429,861 3,025,219 2,073,630 1,318,955 1,134,063 436,264

Change to JanuarySeptember 2013, % +11.8 +0.5 +24.9 +12.2 +15.5 +7.6 +0.4 -18.4 -0.9 +28.6 +6.4 +15.5 +28.8 by 12 times -7.7 +11.5 -22.1 +593.3 +75.9 +160.4

ment altogether. Dobrolet is preparing to be re-launched under a new brand. Russia’s other two largest carriers, UTair and Transaero, are facing a very similar problem of huge short-term debts. UTair’s major shareholder, the Surgutneftegas oil company, backed the carrier by inserting 13.8 billion rubles into its charter capital, to be used in repaying the loans. In July this year, UTair launched a cost-cutting program, dubbed Impulse, to optimize the route network, streamline the aircraft ground

Leonid Faerberg / Transport-Photo.com

Airline

Passenger kilometers

Both UTair and Transaero airlines try to cut the operational expenses and postpone the fleet expansion plans

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

AIR TRANSPORT

Russian airlines have almost tripled the number of passengers carried annually since 2004, from 33.7 million to 84.6 million in 2013, but now the growth pace is slowing down. handling and maintenance systems, and increase operational efficiency. As a result, the carrier expects to save up to 5 billion rubles annually in 2014-15. Financial difficulties and shrinking demand forced UTair to postpone its fleet expansion plans, which had originally called for 22 new deliveries this year. UTair head Andrei Martirosov has been recently quoted by Russian media as saying that deliveries of the carrier’s Airbus A321 narrowbodies would slip to 2016-2018. The airline placed an order for 20 of the type in 2012, with deliveries through 2015. Only eight have been delivered to date. Another deal, signed in 2011, involved the purchase of 40

Boeing 737NG aircraft, including seven 737-900ERs and 33 examples of the 737800 variant. UTair took delivery of six Boeing 737-800s this year, but further deliveries have been postponed indefinitely, according to Martirosov. Transaero managed to solve its financial difficulties by reaching an agreement with state-owned Sberbank in October for a long-term loan of 45 billion rubles. In a drive to improve its operational efficiency the airline also launched a new development strategy in 2013. It shifts the company’s development priorities “from quantitative to qualitative performance indicators”. CEO Olga Pleshakova was quoted by the business daily Vedomosti as

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

saying that the program had allowed the company to save 5.9 billion rubles in 2013. According to her, the airline secured lower airport charges by reducing the take-off weight for its widebody Boeing fleet and optimizing the engine maintenance programs, agent commissions, and renting expenses. Transaero, which is the only Russian airline operating passenger Boeing 747s, has additionally slowed down the seat capacity expansion pace. According to Pleshakova, while in previous years this parameter was growing by 10% annually, this year the carrier took delivery of only 7 aircraft, bringing the overall number of seats just by 2.8%. In September, Transaero canceled an order for four Boeing 787s and opted for five 767s instead, at five times lower the lease rate. In 2015-16, Transaero is planning to add four Airbus A380s and four Boeing 7478s, while its narrowbody fleet should expand through Boeing 737-800 and A321 deliveries.

BUSINESS AVIATION

Negative effect Bizav market shrinks in Russia

he difficult political and economic situation is starting to affect the Russian bizav market. According to the German consultancy Wingx Advance, the number of business aviation flights into Russia and the CIS dropped 31% year-on-year in the first eight months of 2014. Bizav traffic between Russia and Europe dropped by 6% over the same period. In August alone, bizav activity shrank by nearly 17% compared to the same period in 2013. The crisis is also noticeable in Ukraine and Turkey (a drop of around 40%), as well as in all of Eastern and Central Europe. Avinode, the world’s largest business charters booking platform, confirms that the number of requests for business travel from Russia and the CIS decreased by 5% year-on-year in the first eight months of 2014, while other regions of the world continued growing. In Europe, for example, the number of bizav charter bookings grew by 30% over the same period. Georgy Sharov, CEO of Vnukovo 3, which is the largest business aviation center in Russia and the CIS, mentioned the market crisis back in early September, saying his company did not expect any operational growth because of the difficult political and economic circumstances. Another factor preventing Vnukovo 3 operations from expanding to other Russian regions is that bizav infrastructure is virtually non-existent in airports across the country, for the exception of Moscow’s three major airports and St. Petersburg’s Pulkovo.

Sergey Sergeev

Tatyana Volodina

The number of business aviation flights into Russia and the CIS dropped 31% in January-August of 2014

Vnukovo 3 handled 19,437 bizav flights in 2013, which is comparable to pre-crisis 2008 and five times more than 10 years ago. Speaking at the JetExpo 2014 exhibition in Moscow in early September, Evgeny Bakhtin, vice-president of Russian United Business Aviation Association (RUBAA), mentioned other problems of the sector. According to him, the primary challenge faced by Russian business aviation is that airports and ground handling agents hold the monopoly on the market. Combined with many other factors, this results in unjustified high handling

considerably. The most noticeable drop, at 40%, was observed in services between Russia and Ukraine. Despite this, Ukraine remains among the top five of the most popular countries among bizav passengers flying from Russia, according to the Wingx Advance statistics for the first eight months of 2014. France tops the list, followed by Italy, Germany, and Switzerland. According to Avinode, Nice was the most popular foreign bizav destinations for Russian customers between September 2013 and August 2014. It was followed by Geneva and Aix-les-

Despite the political tensions, Ukraine remains among the top five of the most popular countries among bizav passengers flying from Russia. prices for business aircraft, limiting the affordability of bizav services and throttling the sector’s development. Wingx Advance blames the market decline on the political crisis in the relationships between Russia and Europe. Fewer business aviation flights depart from Russia not just for Ukraine but also for France and Switzerland. In the first two months of 2014, bizav services were growing at over 10% per month, whereas in March, when Russia annexed Crimea, traffic began shrinking

Bains in the Rhone-Alpes region in South-Eastern France. The top 10 destinations also included Dubai, Pisa, Le Bourget, Luton, Sochi, Olbia in Sardinia, and Antalya. Domodedovo Business Aviation Center reports that European destinations accounted for the greatest portion of all bizav flights handled by the airport in September 2014. Germany enjoyed the greatest popularity with nearly 14% of all flights, followed by Italy (almost 11%) and France (9.5%).

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

SPACE BUSINESS

Russiaâ&#x20AC;&#x2122;s Soyuz, Progress spacecraft to be upgraded Igor Afanasyev and Dmitry Vorontsov he Soviet-designed Soyuz manned spacecraft has been hauling crews into orbit for 47 years now. Design work on the vehicle began in 1959, which puts its total age at 55. However, thanks to continuous modernization efforts, the Soyuz is still going strong. The current iteration, the Soyuz TMA-M, was commissioned in 2010. An even more advanced model is in the pipeline, to be known as the Soyuz TMA-MS (or Soyuz MS). There will also be an upgraded resupply vehicle, the Progress MS. The development of the previous manned version, the Soyuz TMA-M, was primarily aimed at upgrading the digital computer and the telemetry transmission system. Earlier Soyuz craft were fitted with an analog telemetry system. The new solution is more compact, nasa.gov

and has an advanced TsVM-101-class computer. The modernization effort saw the replacement of the original 36 obsolete instruments with 19 newly designed ones, necessitating corresponding updates to the on-board complex control system and thermal control system. The new craft is easier to manufacture, and its total empty weight is 70 kg lower than that of the predecessor. The Soyuz manufacturer, Energia Rocket and Space Corporation, first announced plans for the new modification in 2011. It was reported back then that the Soyuz TMA-MS would get more efficient solar panels with photovoltaic converters, and that the docking and attitude control thrusters would be rearranged for reliable rendezvousing with the International Space Station (ISS) even if one of the thrusters failed, and for safe re-entry in case any of two thrusters failed.

The current spacecraft variant, the Soyuz TMA-M, was commissioned in 2010

RUSSIA/CIS OBSERVER â&#x201E;&#x2013; 2 (40) NOVEMBER 2014

As distinct from the previous versions, the Soyuz and Progress MS modifications will have GLONASS/ GPS satellite navigation capability, an advanced control radio link with a satcom channel, and the Kurs NA automated docking system which is two times lighter than the previous one and consumes three times less power. In April 2014, the active electronically scanned array (AESA) of the Signal command and telemetry system was delivered to the ISS in the Progress M23M vehicle. It was mounted outside the Zvezda service module this summer to be used in tests of the S-band radio channel both directly, via ground stations, and via Luch-5 relay satellites. The AESA-enabled Signal system will eventually be installed on all Progress and Soyuz craft in lieu of the current Kvant-V two-way radio communications system.

SPACE BUSINESS

The Soyuz and Progress MS modifications will have satellite navigation capability, an advanced control radio link and the Kurs NA automated docking system

of the trajectory control and navigation system will be replaced by advanced satnav equipment. Work is under way to prepare both vehicles for flight tests. Last year saw the development of design documentation for the installation of instruments and equipment on the first Soyuz-MS to go into space; work continued to draft schematics for an integrated test stand for onboard systems. Energia has begun manufacturing parts of the spacecraft’s body, and has built a universal transport container for taking Soyuz and Progress vehicles from the manufacturing site to the cosmodrome using all modes of transportation. Also last year, Energia began prototyping and ground-testing the Progress MS. Vitaly Lopota, then president of the company, said that production of the Soyuz-MS (six craft in various phases of completion) and the ProgressMS (nine craft in various phases of completion) would commence in 2013-14. According to our information, the first Progress MS (No 431) is to be launched on October 26, 2015. Soyuz MS tests will begin next year, according to Valery

nasa.gov

The upgrade effort is called to boost the functionality of the Soyuz’s equipment by ensuring command and control beyond the line of sight of the Russian ground control stations. It will provide the crew with uninterrupted updates on the trajectory parameters without relying on ground tracking equipment. The communications system will utilize Luch relay satellites for constant direct contact with ground control. The modernization program makes the Soyuz more reliable and safe to operate, improves structural commonality, and replaces obsolete materials and components with new, advanced ones. One of the factors contributing to better reliability is the introduction of backup electrical actuators on the docking assembly and the interface sealing mechanism. The new Soyuz will have increased protection against space debris and micrometeoroids thanks to the installation of additional meteoroid shielding. It will also have a digital TV radio link. The upgraded craft’s equipment will be based entirely on Russianmade electronic components. The reentry vehicle’s new communications and detection system will make it easier to find anywhere on Earth, including through the use of GLONASS sensors. Throughout the parachute-assisted descent and after the touchdown, the reentry vehicle’s GLONASS/GPS coordinates will be fed to the Korolev, Moscow Region mission control center via the COSPAS-SARSAT channel. Less conspicuous but equally important changes include an upgraded transitional hand controller, which took two years to design. The first Soyuz thus upgraded will be launched by year-end. In fact, everything on board that comes in contact with the pilot’s hands will undergo gradual improvements. The outwardly minor upgrades necessitated numerous changes to the design specifications and production processes. All this is to make the pilot more comfortable operating the spacecraft and to eliminate the possibility of erroneous actions. The unmanned Progress MS resupply vehicle will get a new LED spotlight. The orbit radio tracking modules

Korzun, deputy head of the Russian cosmonaut training center: “We are expecting to begin training with the Soyuz MS modification next year.” The first such craft, the Soyuz MS-01, is currently expected to be launched on March 30, 2016, carrying the ISS-47/48 expedition crew (Alexey Ovchinin, Oleg Skripochka and Geoffrey Williams). “After that we will begin training with the MultiPurpose Laboratory Module [also known as Nauka, a planned addition to the ISS], we already know the dates. Training on a scientific and power-producing module is also in our plans,” Korzun adds. From the very start, a “baby steps” strategy was selected for the Soyuz modernization program. The overall appearance of the craft remains unchanged. The greatest engineering efforts have gone into modernizing individual assemblies and systems. As a result, Russia now has a fairly modern and reliable manned spacecraft. This is why, despite the on-going work to develop the Prospective Piloted Transport System (PPTS), Soyuz vehicles will keep going to space for years to come.

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

SPACE BUSINESS

Proton launches resume Igor Afanasyev and Dmitry Vorontsov n September 28, 2014, a Proton-M launch vehicle with a Briz-M orbit-insertion upper stage lifted off from Baikonur Cosmodrome, successfully inserting a Luch relay satellite into a near-nominal orbit. This marked the resumption of Proton operations following a failed launch on May 16, 2014, when an upper-stage malfunction prevented the orbiting of the ExpressAM4R communications satellite. The cause of the accident was made public on June 11: a disintegrated bearing in the upper-stage thruster turbopump. Roscosmos head Oleg Ostapenko commented: “Our final conclusion backs the preliminary theory voiced in the initial phase of the inquiry. The telemetry and analytical information we have indicate that a bearing must have been disintegrated in the turbopump.” The accident, and the subsequent grounding of the Proton fleet, affected the current launch schedule. The constrained throughput capacity of the Briz-M fuelling area also played a role. Early in 2014, the plan was to launch

14 Protons during the year. Only five launches had been performed by late September; another four rockets are expected to be launched by year-end. Consequently, the number of Proton-assisted commercial launches

Since early 2014, the commercial geostationary satellite market has been dominated by orders for lightweight spacecraft. has also dropped. Of the 11 launches scheduled for 2015, only six will be performed in the interest of foreign customers. According to a forecast made by the Proton-M operator, the Reston, Virginia-based Russian-US joint venture International Launch Services (ILS), the launch rate will drop to three or four per year in 201617. ILS has already announced it will lay off 25% of personnel to retain just 35-40 staff. ILS holds exclusive rights to the marketing and commercial operation of the Proton launch vehicle, the Briz-M upper stage and the Angara

Sergey Sergeev

Proton launches were suspended after the failure during the launch of Express-AM4R satellite on May 16, 2014

rocket family. The company has launched over 80 Protons over the 18 years of its operation. The market situation is actually the primary cause of the declining demand for Proton-M services. Since early

RUSSIA/CIS OBSERVER № 2 (40) NOVEMBER 2014

2014, the commercial geostationary satellite market has been dominated by orders for lightweight spacecraft. This new trend, which follows two years of strong demand for heavy satellites, did not caught launch specialists off guard: on March 10, 2014, ILS President Phil Slack and Nikolay Testoyedov, CEO of the Russian company ISS-Reshetnev, signed a cooperation agreement on dual satellite launches using a single Proton-M vehicle. The two companies will be jointly seeking spacecraft which can be duallaunched in stacked configuration, with the lower one supporting the upper one. Reshetnev already has a fitting satellite platform, the Express 1000, whose reinforced design allows for stacking spacecraft one on top of the other. To date, the platform has been used in four tandem launches: on February 11, 2009 (Express-AM44 and Express-MD1), on July 16, 2011 (SES-3 and KazSat2), on August 6, 2012 (Telkom 3 and Express-MD2), and on March 16, 2014 (Express-AT1 and Express-AT2). The upper satellites for the 2011 and 2012 launches were provided by ILS. The resumption of Proton-M operations means that the vehicle may remain on the space-launch market until the mid-2020s.

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