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Friday, October 27, 2006

Felgenhaur: U.S. Sanctions Bite Russian Aircraft Industry

Writing in the Eurasia Daily Monitor, the brilliant Pavel Felgenhaur reveals the effect of U.S. sanctions on Russia over Iran:

Russian aircraft producer Sukhoi and the official arms trader Rosoboroneksport are beginning to feel the sanctions imposed last July by the U.S. Department of State for violating the Iran Non-Proliferation Act of 2000 (EDM, August 7). Sukhoi Civil Aircraft announced that the restrictions might hamper component supplies for the company's planned SuperJet-100 regional airliner (Moscow Times, October 23).

U.S. companies that are directly involved in the SuperJet-100 project have indicated that the sanctions will not hamper their participation. However, the French Snecma company, which is contracted to make the jet's SaM-146 engine, is concerned about the delivery of a U.S.-made component used in the SaM-146 electronic control system.Sukhoi's civil aircraft chief Viktor Subbotin told reporters in Moscow on October 20: "If the sanctions are switched fully on, everything will stop."

The already fuzzy situation with plans to begin SuperJet-100 production has an additional factor of uncertainty: According to Rosoboroneksport chief Sergei Chemizov, all foreign contractors are supplying parts and services to Sukhoi through Rosoboroneksport (RIA-Novosti, August 7). Sukhoi could stop its arms business with Iran and the State Department could take it off its sanctions list. But Rosoboroneksport has multi-billion-dollar arms contracts with Iran that it will be highly reluctant to scratch, still leaving the SuperJet-100 in limbo.The 75- to 95-seat SuperJet-100 is scheduled to enter service in late 2008 with the first deliveries designated for Aeroflot.

The SuperJet-100 project is the most promising attempt to restart the practically defunct Russian aircraft industry with the help of Western partners and technologies.Russia is a vast country with very poor roads. Air traffic is the only practical way to access most of Siberia and the Far East. Russia as a state is more or less held together by a network of several thousand jets and helicopters inherited from Soviet times. But these planes are old and, even more important, their Soviet-designed engines are extremely fuel inefficient (Moscow News, August 4).

There are also 46 foreign-made jets in operation, but a 42% tax and import duty barrier prevents the purchase of more foreign-made jets.Currently the Russian aircraft industry is able to produce no more than a few Il-96 or Tu-204 passenger jets a year -- planes that were designed in the 1980s and cannot be considered truly modern. The Russian industry has failed to produce a modern reliable and fuel-efficient jet engine.The collapse of Russian aircraft production is not unique, it is part of the overall crisis in high technology and the defense industry.

After 1991 production units continued to produce weapons, helicopters, and jets at levels that were only a fraction of Soviet-era orders. To minimize costs, pre-1991 stockpiles of components were used to make new planes. After more than a decade with virtually no orders, the Soviet components industry disintegrated.Technological capabilities have been lost and, in many cases, Russia has lost the capacity to reproduce many of the items that were made in Soviet times.

In 2004 the last heavy An-124 Ruslan transport plane was built in Russia using Soviet-era components that were fit on the last remaining Soviet-made air-hull. This last Ruslan was procured by one of Russia's most successful private air transport companies, Volga-Dnepr, which specializes in heavy and oversize payloads, such as NATO shipments to Afghanistan and other distant destinations.Because of its unique capabilities to transport heavy and oversize cargo, the An-124 is today the only internationally commercially successful Russian-made plane, despite the fuel-inefficiency of its engines.

There is a market for more An-124s, but production has stopped and cannot be resumed without finding component producers and redesigning the plane. The design bureau that developed the original An-124 is in Kyiv, Ukraine, which poses further complications.In 2005 the Kremlin officially declared the resumption of An-124 production to be a national priority. Yesterday, October 24, in Kyiv Russian Prime Minister Mikhail Fradkov discussed the resumption of An-124 production as a joint Russo-Ukrainian venture with his Ukrainian counterpart, Viktor Yanukovych (strana.ru, October 24).

Yet plans call for An-124 production to not resume until 2010 or 2011, and further delays are possibleRussia’s inability to produce even the An-124 -- a successful, but not very modern plane -- exposes the true state of the country’s high-tech industry. The problem is not only that the collapse of Soviet components industry stifles production: Even if work were somehow resumed, the industry would be manufacturing obsolete items, designed in the 1980s and 1970s.

Many analysts in Russia realize that without Western technologies and components and Western licenses to produce dual-use and dedicated defense equipment, Russian industry is doomed. At the same time, Moscow embraces a military doctrine that considers NATO to be the main enemy and therefore the use of any Western-made components is strictly forbidden. Military-industrial entities experience great difficulty getting licenses that allow production and R&D cooperation with NATO countries.

The SuperJet-100 is unique in that it is the first major Russian aviation joint project with the West. Of course, the jet is a civilian passenger plane, but the Sukhoi Company is also a major producer of military jets. If the SuperJet-100 project is a success and a commercially valid jet to cover Russia's internal regional transport needs is produced, it could be an important step in promoting further cooperation. Seeing the endeavor fail because of differences over Iran and its nuclear program does not seem to be in anyone's interest.

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