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November 2013. Latest news and analytics on Russian and CIS aerospace industry. Special focus on Dubai Airshow.

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Page 1: Russia & CIS Observer. Special focus on Dubai Airshow 2013

Russia&CIS Observer! 3 (38) november 2013

Russia&CIS Observerwww.ato.ru/rco

special focus on dubai airshow 2013

Page 2: Russia & CIS Observer. Special focus on Dubai Airshow 2013
Page 3: Russia & CIS Observer. Special focus on Dubai Airshow 2013

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 2013 1

1212

1010

1414

22

•AEROSPACE INDUSTRY

New challenges

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

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

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

Sukhoi fighters will remain the

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

India to receive ex-Russian carrier

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

AIR TRANSPORT

Aeroflot launches

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

Russian passenger air traffic

continues to grow ..............................14

•BUSINESS AVIATION

Controversial stability on the

Russian bizav market..........................16

SPACE BUSINESS

The future of Russia’s launch

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

Nuclear power

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

Russia/CIS Observer is produced by:

PublisherEvgeny Semenov

Editior"in"ChiefMaxim Pyadushkin

Art DirectorAndrey Khorkov

Commercial DirectorSergey Belyaev

Advertising ManagerOleg Abdulov

Cover PhotosLeonid Faerberg, Fyodor Borisov, Novosti Kosmonavtiki Magazine

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.

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© ! 3 (38), November 2014Tel./Fax: +7 (495) 933 0297

Correspondence: P.O. Box 127, Moscow, 119048, Russia

1818

Russia &CIS Observerfrom the publisher of ! 3 (38) november 2013

Visit our website at www.ato.ru/rco

Page 4: Russia & CIS Observer. Special focus on Dubai Airshow 2013

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 20132

AEROSPACE INDUSTRY

Maxim Pyadushkin

The end of this summer andall of the fall were quite in-tense for the SukhoiSuperjet 100 program. The

new Russian regional airliner’s manu-facturer Sukhoi Civil Aircraft (SCAC)saw its backlog grow impressively, andreceived positive news about the initialoperation results of its brainchild inLatin America and Asia.

The total number of SSJ100 ordersreached 200 at the MAKS 2013 aero-space exhibition in Zhukovsky, outsideMoscow, in August. On the first day ofthe show, Ilyushin Finance Co. (IFC)firmed up 20 preliminary orders. Fiveof the aircraft, in the SSJ100LR long-range variant, are to be delivered to anas-yet undisclosed customer from late2015. Thinner seats will allow for ex-tending these airliners’ capacity to 103passengers. The rest of the IFC aircraftwill come in the baseline variant; thesewill be delivered to customers in

Southeast Asia and the Middle East in2015.

Another Russian lessor, SberbankLeasing, used MAKS to sign a $700million preliminary agreement withSCAC for the delivery of 20 aircraft.The parties also announced during theshow that they will set up a joint ven-ture to promote SSJ 100 sales in Russiaand abroad.

Another customer at MAKS wasAviaAm Leasing, a subsidiary ofLithuania-based Avia Solutions Group,which signed an MoU for the purchaseof five aircraft. The deal is valued at$100 million, with deliveries expectedto start in 2014. According to SCACPresident Andrey Kalinovsky, AviaSolutions Group’s other subsidiary, FLTechnics, has already set up a spareparts warehouse in Malaysia to supportSSJ100 operations in Indonesia andLaos.

In a yet another development, UTairAviation, Russia’s third largest airlinefor passengers carried, placed an order

for six SSJ100s through the VEBLeasing company with deliveries from2014. The deal is part of an MoU for 24aircraft signed by UTair and SCAC inNovember 2010.

Finally, Russia’s arms trade monop-oly Rosoboronexport became thelaunch customer for the VIP-config-ured SSJ100. The aircraft is based onthe SSJ100 Basic variant and features aluxurious cabin seating up to 19 passen-gers. Rosoboronexport’s single aircrafton order should be delivered later thisautumn. SCAC is also working on amore specialized Sukhoi Business Jetvariant, which is expected to be readyfor market entry in 2015.

In August this year, the AviationRegister arm of CIS-wide InterstateAviation Committee certified the air-craft’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 49.5tons, and it has a reinforced wing. TheLR version is powered by a pair of NPO

New challenges for SukhoiSuperjet 100The Russian regional airliner program is ramping up production in a bid to attainfinancial stability

SJI

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RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 2013 3

AEROSPACE INDUSTRY

Saturn-Snecma SaM146 1S18 engines,which offer 5% higher take-off thrust(16,100 lbf) compared with the standardSaM-146 design. Gazpromavia, a sub-sidiary of Russian gas giant Gazprom,became the launch customer for thelong-range version; its first aircraft carry90 passengers in an all-economy con-figuration. The first example has alreadybeen delivered; the other nine aircrafton order will follow by 2015.

Other SSJ100 deliveries in 2013 in-cluded two to Aeroflot, one to Yakutia,and one to Moskovia – all three areRussian carriers. Foreign deliveries,one each, went to Laos’ Lao Centraland Indonesia’s Sky Aviation. The typealso began revenue flights withMexican carrier Interjet, the firstSSJ100 customer in the Americas.

Interjet’s first aircraft was deliveredby SuperJet International (SJI),Sukhoi’s JV with Alenia Aermacchi, atthe Paris Air Show 2013. The secondone followed in early August, and thethird made it to Mexico under its ownsteam in November. In all, Interjet ex-pects to receive eight of the type by theend of the year, out of the 20 on order.The remaining 12 airframes should bedelivered during 2014. The carrier alsohas an option for 10 more.

The first two Interjet SSJ100s enteredservice in mid-September. By the endof October they had performed over580 revenue flights for a total of around600 hours, or 9.74 hours per day on av-erage.

Interjet’s SSJ100s fly from MexicoCity to Torreon, Aguascalientes,Campeche, Minatitlan, Zacatecas, andMazatlan. The airline estimates the av-erage sector length at about one hour’sflight time, and says the fleet’s maxi-mum combined time in the air exceeds11 hours per day.

“We are very proud of the newSSJ100: it is currently the only regionalaircraft with a five-abreast configura-tion, enabling mainline comfort withreduced operating costs and the flexi-bility of a regional jet to be operated insmall airports,” says Interjet CEO JoseLuis Garza, adding that these aircraftwill serve Mexico’s domestic mid-den-

sity routes as well as some short-haulinternational ones.

Interjet’s SSJ100s have 99.03%despatch reliability. Oscar Ruiz,Interjet Technical Director, says anytechnical issues are rectified during thenighttime, so the aircraft is serviceableagain the next morning. The airlinemakes use of parts depots in Miami andFrankfurt. The former ships on the nextday, the latter takes two days to deliver.Critical parts and no-go items arestored in Mexico.

SCAC and SJI view Interjet’s oper-ating results as an essential componentof their drive to promote the SSJ100 onthe global market. SCAC is planning tohave built 26 of the type in 2013.President Andrey Kalinovsky has pre-dicted earlier that the production cycleper airframe would be brought down to10 days by year-end, translating to anoutput capacity of around three air-

frames per month. Green aircraft getdelivered to two customization centres,either in Ulyuanovsk or in Venice,where they are outfitted depending onthe customer preferences. Russia’sUnited Aircraft Corporation (UAC), ofwhich SCAC is a subsidiary, forecaststhat SSJ100 output will grow by 54% to40 airframes next year.

Despite the ramp-up, SCAC so farcannot boast solid financial indicators.Its revenue for the first nine months ofthe year amounted to 3.518 billionrubles ($110 million), or 14.2% downyear-on-year from 2012. “This drop isto a large extent explained by objective

factors, including insufficient develop-ment of sales financing mechanisms, aswell as losses incurred from sales to thelaunch customers,” the companynotes.

SCAC’s RAS net loss for the firstthree quarters of the year amounted to7.285 billion rubles, or 2.8 times morethan the same period in 2012. However,UAC says the company’s financial situ-ation is within the approved businessplan, which calls for the first operatingrevenue to be received in 2014, and forthe business to break even in 2018.

As a part of the rescue plan, Russianstate-owned Vnesheconombank willbecome a participant in the SSJ100program through a stake in SCAC par-ent company Sukhoi. The decision wasapproved by the bank’s supervisoryboard in September. “We will become[a shareholder] to the extent and on theconditions that will not damage the fi-

nancial stability of Vnesh econom -bank”, VEB Chairman VladimirDmitriev explained. Sukhoi currentlyholds 72% in SCAC; 25% belongs toAlenia Aermacchi of Italy, and 3% isheld by Sukhoi Design Bureau.

Vnesheconombank can now convertinto the Sukhoi shares some of the $633million debt owed by SCAC as part of a$1 billion credit line opened in 2012.The Russian government has permittedVnesheconombank to spend some ofthe money received from the sale of itsEADS stake on buying Sukhoi shares.As a result, the bank may end up con-trolling up to 33% in Sukhoi.

Gazpromavia became the launch customerfor the SSJ100 long-range version

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Busy future forUlyanovsk facility— How is work progressing tolaunch series production of theIl-76MD-90A aircraft? Whatis the planned annual produc-tion rate?

— The Russian governmentin 2006 decided to move Il-76production from Tashkent toUlyanovsk. Aviastar-SP the -re fore laun ched a massive re-tooling and retraining pro-gram to prepare for series pro-duction of these aircraft withthe use of advanced digitaltechnology. In these past sixyears, the facility has reacheda totally new level of produc-tion efficiency, both in term ofour technological capacityand personnel qualification.

The first Il-76MD-90A fly-ing prototype performed ademonstration flight onOctober 4, 2012. On the sameday, the Defense Ministry or-dered 39 such aircraft.

The flying prototype hassuccessfully completed fac-tory tests and started on theofficial testing program. Wehave also built an airframefor endurance testing, whichis currently at the CentralAero hydro dynamic Institute(TsAGI). We are buildingthree production examples,which will be part of the pilotbatch. Factory tests on thefirst production aircraft willcommence next January. Weare planning to deliver twoproduction examples nextyear, one in April and theother in October.

We are already capable ofbuilding six to eight aircraft

a year. Under the instruc-tions of the United AircraftCorporation (UAC), wemust be able to build 18 air-craft a year by 2018.

— What is the status of theTupolev Tu-204 family of air-liners?

— At present, Aviastar-SPprovides airworthiness mainte-nance services on those exam-ples which have been built todate. Tu-204-100V productionhas been suspended becausethe decision was made in 2010to upgrade this modification tothe Tu-204SM standard. Wewere requested to build twosuch airframes, which under-went a series of tests in 2011-12. The Interstate AviationCommit tee certified the Tu-204SM in May 2013.

— The latest modernizationeffort on the An-124 Ruslantransport is entering its finalphase. What is the status ofthis program, and what areyour plans for the future?

— Aviastar-SP has beencontracted by the RussianDefense Ministry to restoreand upgrade its six Ruslan air-craft. Three airframes have al-ready been returned to thecustomer. The fourth aircraftwill be ready by the year-end,and work on the remainingtwo will be completed in2014. In parallel, we provideairworthiness maintenanceservices on the An-124 fleetsoperated by the Volga-Dneprand Polet air carriers.

— Will An-124 productionbe resumed?

— This is part of the UACplans. Resumption of produc-tion would require significantfunding. However, before in-vesting, we need to have a firmconsolidated launch order.

— What is the current de-velopment strategy forAviastar-SP? What are yourpriority programs?

— Aviastar-SP positions it-self as the primary manufac-turer of transport aircraft. Ourmain product is the Il-76MD-90A. We participate inthe production of the Russo-Indian MTA transport. Thefacility also works on severalcivilian products. I have men-tioned the Tu-204 and An-124 programs. Our other ac-tivity is installing interiors onSukhoi Superjet 100 airliners.We are seriously involved inthe Irkut MC-21 program.

— You will need morehands to work on all theseprograms. What is your per-sonnel policy?

— In January this year, afterthe signing of the Il-76MD-90A contract, we launched anew recruitment campaign.This is of course a complextask, but we had been preparingbeforehand by training our ex-isting personnel. Right now wehave around 2,000 regular staff.As production ramps up, theirnumber should reach 5,000.We will need even more if thereare contracts for the Tu-204and other aircraft types.

This interview is prepared by Dmitry Churov.

The Ulyanovsk-based Aviastar-SP aviation facility used tobuild Antonov An-124 Ruslan heavy-lifters. Now the plant islaunching series production of the upgraded Ilyushin Il-76transport aircraft. General Director Sergey Dementyev toldRussia & CIS Observer about the plant’s current programs andplans for the future.

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AEROSPACE INDUSTRY

Antonov jet entersforeign markets

Polina Zvereva

At the recent MAKS 2013 airshow in Zhukovsky outsideMoscow, two airlines –Angara of Russia and

Cuba’s Cubana de Aviacion – signedup for additional An-148/158 aircraft.The new contracts had been expectedin both cases. Angara ordered two An-148s from Russian lessor IlyushinFinance Co. (IFC), to be built atVoronezh-based VASO factory and de-livered in 2014. The contract is under-stood to be worth over $60 million.Angara already operates three of thetype, delivered by IFC in 2012 under an

agreement signed in 2011 with the car-rier’s Irkutsk-based parent companyEastland. The contract covered fivefirm orders and an option for five moreAn-148s.

Angara became the third Russiancommercial carrier to operate An-148safter Rossiya, with six such airframes inits fleet, and Polet Airlines with two.Rossiya became the launch customeron the type in December 2009. The air-line’s An-148 fleet accumulated 18,628flying hours in 2012, or around 5% upon the 2011 figure (17,759 hours). The2010 flying time was just 6,500 hours,but Rossiya back then had only threeAn-148s. The airline had originally

complemented its six firm orders by anoption for a further nine. However, theidea to further expand the An-148 fleetwas dropped after Rossiya became apart of Aeroflot Group, losing VASO apotential nine-ship contract.

VASO reports that by mid-July 2013,the monthly flying time for Rossiya’sAn-148 fleet averaged at 300 hours perairframe. Polet’s figure was 200 hours;one of Angara’s An-148s clocked 250hours in June. To put this in context,individual Russian carriers accumulateup to 400 flying hours per aircraft permonth on their Airbus A320 familymedium-range jetliners. This makes200-250 hours for the An-148 regionaljet quite a good figure, and 300 hoursper month is very impressive indeed.

Speaking of government operators, asingle An-148 has been delivered to theRussian president’s administrative de-partment, and two more aircraft to theRussian Emergencies Ministry. As an-nounced at the VASO general meeting

Since the first deliveries to St Petersburg-based launch customer Rossiya –Russian Airlines in 2009, the Antonov An-148/158 family of regional jets hasremained a niche product. Now, however, a new marketing strategy has evolvedthat may help expand the aircraft’s international presence as lessors are beginningto promote it as a replacement for the BAe146 and Avro RJ models. Althoughunlikely to boost sales dramatically, this development could result in more Antonovjetliners operated around the world

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

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of shareholders in June, the companylanded an order in May to build 15 An-148s for the Russian Defense Ministry.Deliveries are scheduled to begin byyear-end and continue until 2017.

The first An-148 under this deal isexpected to be handed over to theRussian Defense Ministry shortly. TheAircraft Interiors Association (AIA)announced a new order for a VIP con-figured An-148 at MAKS 2013. Theformal customer is the airframe manu-facturer VASO. Under the contract,deliveries of Russian-made furniturefor the airliner’s cabin should have beencompleted by late September 2013.AIA is not disclosing the name of theend customer, but there are indicationsthat the aircraft may be intended for theDefense Ministry.

A VASO conference last fall dis-cussed the possibility of accommodat-ing a consolidated government orderfor the type. Russia’s United AircraftCorporation (of which VASO is a sub-sidiary) said at the time that up to 20such aircraft might be ordered.

Cuba’s major carrier Cubana becameanother customer for the Antonov re-gional family at this year’s MAKS.South American Aircraft Leasing(SAAL), a subsidiary of InternationalAircraft Leasing Holding, used the airshow to hand over to the Cuban carrierits third An-158 under a contractsigned at the previous MAKS in 2011.Production of the batch at theUkrainian OEM Antonov was organ-ized by IFC; a group of Russian banksled by Roseximbank financed the deal.Also at this year’s MAKS, Cubanafirmed up its option for three more An-158 aircraft, which was signed in spring2013 following the first delivery.

The An-158 is a stretch of the An-148formerly known as the An-148-200. Theversion was rolled out in April 2010; cer-tification was completed in 2011. TheAn-158 unit cost is estimated at $28-30million, depending on options. The totalvalue of Cubana’s six-ship order maytherefore reach $180 million.

Cubana de Aviacion choosesRussian- and Ukrainian-built airlinersfor their balance of price and quality.

Line maintenance is performed inCuba; further plans call for offeringheavy maintenance forms in that coun-try. Cubana technical personnel willtravel to Russia next year to receive rel-evant training.

SAAL head Ralph Dieter Montag-Girmes says his company “hopes thatCubana’s passenger numbers will con-tinue grow, and does not rule out thatthe carrier will place additional ordersin the next two years”. At Farnboroughair show in 2012, SAAL signed anagreement to deliver 15 Antonov air-craft to Latin America, including threeAn-158 firm orders and an option for12 An-148/158s.

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

ators of the BAe 146 regional jetlinerand its Avro RJ modification, whichwere built in the UK between 1983 and2002 and seat 70 to 112 passengers.These aircraft are currently flowncommercially around the world, in-cluding in Australia, New Zealand,Belgium, Bulgaria, Germany, GreatBritain, Ghana, and Botswana. Theyare also operated in transport roles bygovernment agencies in a number of

countries. Unlike the four-enginedBAe 146 and Avro RJ, the An-148 hasonly two powerplants, which consid-erably reduces the associated mainte-nance costs.

“The An-148 family is definitelyniche aircraft with an incredible un-paved runway capability,” says IFCInternational Sales and MarketingDirector Stewart Cordner. “I know thatsome B!" 146 and Avro RJ operatorsare seriously looking to upgrade theirfleets with An-148s, and we are in talkswith them. BAe146 and Avro RJ oper-ators are forced to look for replace-ments because their airliners have been

out of production for nearly 13 years,the size of the operational fleet contin-ues to shrink, and maintenance costskeep rising. Therefore, we believe that[the An-148] will prove an ideal alter-native for those carriers not wishing tooperate in the low-fares segment, andalso for operators serving the oil-and-gas sector or working under govern-ment contracts in the interests of secu-rity agencies.”

IFC sees a potential market for theAn-148/158 among the current operators ofthe BAe 146 regional jetliner and its Avro RJmodification

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

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Alexei Sinitsky

As demonstrated at theMAKS 2013 air show thisAugust, Russia’s new IrkutMC-21 mainline narrow-

body passenger aircraft is enjoyingstrong demand from lessors and carri-ers, despite the fact that the airliner isstill under development. A total of 82such airliners were ordered duringMAKS alone, for a combined value ofnearly $6.7 billion. In particular,Russian lessor VEB-Leasing firmed upits 30-ship contract at the show;Ilyushin Finance Co. (IFC) did thesame with its option for 22 aircraft.Irkutsk-based carrier IrAero signed upfor 10 aircraft, while Sberbank Leasingcommitted to 20. Depending on con-figuration, the unit cost under thesecontracts varies between $72 millionand $85 million.

Prior to this year’s MAKS, the MC-21 portfolio stood at 256 units, includ-ing 135 firm orders. Commercial oper-ation of the type is expected to com-mence in 2017. It is obvious that such ahefty backlog must be met with appro-priate production capacities, or deliv-eries will slip.

Another MAKS event, one that wouldat first appear to have no connection tothe MC-21 program, was the delivery toAirbus of the 500th A320 nose landinggear bay shipset for A320 manufacturedby Irkut Corporation. Airbus has beenoutsourcing to Irkut since 2004; theRussian company manufactures noselanding gear bays, flap tracks, and keelbeams for the A320 family. Since 2009,these components have been deliveredto Airbus via aerostructures specialistAerolia, which builds A320 fuselage sec-

tions. Irkut currently supplies 12 shipsetsper month, corroborating the statementby Christopher Buckley, AirbusExecutive Vice-President Europe, Asia,and the Pacific, that every third airlinerof the A320 family contains Russian-made components.

This cooperation raises a number ofquestions. The MC-21 is being targetedat the same narrowbody segment asAirbus’s A320 family and futureA320NEO model. “We will be compet-ing with Airbus, but this does not pre-clude our mutually beneficial industrialcooperation,” says Irkut President OlegDemchenko. “In the course of thisprogram our corporation has demon-strated the international-level quality ofits products.”

Airbus stresses that Irkutsk is in-volved in mass production of A320 air-liners, because 12 shipsets per monthtranslates to 144 sets per year. “There isno other program to manufacturestructural components within theRussian commercial aircraft industrythat could boast equally high produc-tion rates and international-level qual-ity standards,” says AlexanderGaponyuk, Airbus’s manager for in-dustrial cooperation with EasternEurope and Russia. “Thanks to its co-

operation with Airbus, Irkut has gainedvaluable experience and introduced ad-vanced managerial methods applicableto large-scale production for commer-cial aviation components, which can beused in international and Russian pro-grams alike.”

Alexander Veprev, general managerof Irkutsk Aviation Plant and Irkutvice-president, says the corporation isnow actively applying its Airbus com-ponentry production experience inpreparing for the MC-21 productionlaunch. All the requisite technologicalprocesses have been developed, includ-ing the procurement cycle, forging andmachining processes, structural assem-bly, quality control, and process man-agement. The corporation is refurbish-ing its manufacturing tools: a flow as-sembly line has been purchased fromDurr Systems.

In confirmation of Demchenko’sstatement that competition with Airbuswon’t hamper the on-going partner-ship, Raphael Duflos, head of procure-ment and quality supply chain atAerolia, has reported that his companyintends to develop cooperation withIrkut both in terms of ramping up theproduction output and expanding therange of products manufactured.

MC-21 airliner readyingfor series productionIrkut is tooling up to accommodate all orders for its new aircraft design

MC-21 commercial operationis expected to start in 2017

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Rostec eyeing theregional aviation marketPolina Zvereva

Russia’s Rostec StateCorporation has by nowcome to control virtuallyall the domestic aerospace

component vendors, from engine hous-es to avionics specialists. Now the avia-tion giant is planning to have an indige-nous final assembly capability for re-gional turboprop airliners.

In August Rostec signed a MoU withCanadian manufacturer Bombardier toset up a Russian assembly line for Q400turboprop aircraft. The CIS-wideInterstate Aviation Committee certifiedthis model in mid-2012; three of thetype are already in service withYakutsk-based Yakutia Airlines.

The Russian project is set to becomeBombardier’s first assembly line out-side North America. The 50/50 jointventure is estimated to cost $100 mln.Bombardier will contribute with pro-duction technology, design documen-tation, and intellectual property rights.Rostec, for its part, undertakes to buildan assembly facility in the Ulyanovskport special economic zone in 2014.

Russian assembly of Q400s shouldbegin in 2015, followed by the launchof local airframe components produc-tion in 2016. The Ulyanovsk facility isexpected to build up to 24 airliners peryear. Alexei Fyodorov, Rostec’s manag-ing director for aviation projects, saysthere is a market for 250 aircraft of theQ400 class in Russia through to 2030,and that the design capacity of theRussian assembly line would be enoughto meet the potential demand.

Russian-assembled Q400s will sparedomestic carriers the necessity of hav-ing to pay a hefty import duty on for-eign-made airliners of this size. In or-der to up the competitive advantage of

locally built Bombardier aircraft,Rostec in October 2013 successfullylobbied against the initiative of theMinistry of Industry and Trade to liftthe 20% import duty on imported tur-boprops seating up to 72 passengers.

In the meantime, Rostec is in talkswith other potential partners includingEADS, whose subsidiary ATR buildsturboprops of Q400 size. The decisionon a type to be assembled in Russia maybe taken by the year-end.

The Russian corporation also signeda deal with Austrian manufacturerDiamond Aircraft this summer to joint-ly develop and build a smaller aircraft.The presidential commission for gener-al aviation approved the project inOctober. Rostec estimates overall in-vestments in the future joint venture ataround 10 bln rubles ($310 mln)through to 2018. The program coverstwo twin-engined models to be devel-oped from scratch. One will seat ninepassengers, the other will seat 19. In thefirst phase, both the airframes and en-gines will be built entirely in Austria.The second phase will see productionof some components moved to Rostecenterprises. In particular, composite

structures should be produced by RT-Chemcomposite. The aircraft’s 450and 750 hp diesel engines will also bebuilt in Russia eventually. In the finalphase, by 2016, a new production linecapable of building up to 60 diesel-powered composite aircraft per yearwill be built in Russia.

Fyodorov says cooperation withDiamond will help dramatically reducethe price and operating costs of GA air-craft, while increasing their fuel effi-ciency. The new facility may be built atRostec’s Yekaterinburg-based UralWorks of Civil Aviation (UWCA). Thisfacility already assembles DiamondDA-40NG-Tundra single-engine air-craft, the assembly of another model –DA-42 Twin can be a next step.

Rostec explains its interest in region-al airliners by the fact that Russia’s keyaerospace manufacturer, the UnitedAircraft Corporation, does not buildany aircraft in this class, nor is it plan-ning to start building them any timesoon. Virtually no regional-class airlin-ers get built in Russia, for the exceptionof small batches of 50-seat AntonovAn-140 turboprops produced by theSamara-based Aviacor plant.

Rostec and Diamond Aircraft willjointly develop new regional aircraft

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DEFENSE

Russian defense budgetset to grow againRussian defense budgetset to grow again

Maxim Pyadushkin

Even the current economicstagnation in Russia won’tforce the government to cutmilitary spending. A draft

federal budget for 2014 and for 2015-16, which passed its first reading in par-liament this October, calls for yet an-other double-digit hike in national de-fense expenditures. These are set togrow by 18.4% to 2,489 billion rubles($76.6 billion at the current exchangerate) next year, and by a further 21.6%(to 3,027 billion rubles) and 11.6% (to3,378 billion rubles) in 2015 and 2016,respectively.

Defense expenditures will growsteadily as a proportion of the country’soverall budget from 15.6% in 2013 to17.8% in 2014, 19.7% in 2015, and20.6% in 2016. The defense budget willamount 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 de-fense budget is growing increasingly lesstransparent. The parliamentary defensecommittee reports that less than 50% ofdefense spending for the year 2014 (just1,012 billion rubles) is open to publicscrutiny, and this proportion will be-come even smaller in the coming years.According to the committee, “thebudget funding allocated [for defensepurposes, while being] on the wholesufficient for the accomplishment ofmajor strategic goals in developing theRussian armed forces”, does not suc-cumb to proper analysis, including themoney earmarked for re-armamentwith new weaponry and equipment.

Despite their opaque spending prac-tices, it is clear that the national armedforces will continue to turn into a small-

er but more effective and combat-readystructure in the reform process whichwas launched at the end of the 2000s.The current size of the Russian militaryis officially put at 1 million people, butthe real figure is even smaller than that.According to a recent report by theRussian Accounts Chamber, the actualstrength of the armed forces stood at766,055 as of January 1, 2013, including10,000 civilian personnel. The DefenseMinistry is planning to reach 95-100%staffing levels by the end of 2014.

This force restructuring is accompa-nied by massive re-armament effortsunder a 10-year defense procurementprogram launched in 2010. The pro-gram is estimated at 19 trillion rubles;apart from the armed forces, it catersfor the needs of the Interior Ministryand other government paramilitary or-ganizations. The current economic un-certainty has forced the government tocut some civil budget expenditures, buta proposed 5% slash to the defense pro-curement program never took place.Instead, according to the parliamentarydefense committee, some of the pro-curement plans under the programwere postponed until 2017-2020.

This postponement is seen not onlyas a temporary budget saving solutionbut also as a brief break for the coun-try’s defense industry, which has sud-denly found itself inundated with do-mestic orders.

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RUSSIA'S DEFENSE EXPENDITURES

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DEFENSE

Maxim Pyadushkin

Russian jet maker Sukhoicontinues the developmentof the T-50 fifth-genera-tion fighter for the national

air force under the PAK FA program.The fifth prototype of this aircraft madeits hour-long maiden flight atKomsomolsk-on-Amur on October 28.

The manufacturer is not explaininghow the T-50-5 differs from the previ-ous prototypes, nor does it disclosewhat kind of tests the airframe is in-tended for. After the factory trials, T-50-5 will join the other four prototypes,which are currently being test-flown atZhukovsky outside Moscow. Two moreairframes are involved in the groundtest: one of them is used as a ground rig,the other one is undergoing static tests.

The T-50 is intended to replace 4thgeneration Sukhoi Su-27/30 aircraft inthe Russian Air Force. It will also serve asthe baseline for the Russo-Indian FifthGeneration Fighter Aircraft, being devel-oped jointly by Sukhoi and HindustanAeronautics Limited.

The first T-50 prototype flew inJanuary 2010; the flight test programstarted in April same year. The T-50-3prototype, equipped with an AESAradar, joined the trials in 2012, the sameyear as tests began on the fighter’s in-flight refueling capability. According toSukhoi, in the three years of testing theT-50 prototypes completed more than450 flights in total.

The T-50 prototypes involved in theflight tests are currently powered by apair of Item 117 engines, which repre-sent a radical upgrade of the NPO SaturnAL-31F design. Russia’s United EngineCorporation is looking to complete thedevelopment of a production engine forthe Sukhoi T-50 fighters by late 2015.This is when the engineering design

phase is expected to be finished andblueprints issued for the manufacture ofthe gas generator and engine demonstra-tors. Engine prototypes should be builtand enter into testing in 2016.

Earlier, Russian Air Force Com -mander-in-Chief Lt-Gen Viktor Bon -darev said that the flying phase of thejoint evaluation trials should begin in2013. Series production of the newfighter is expected to be launched in2016. According to Mikhail Pogosyan,head of Sukhoi’s parent companyUnited Aircraft Corporation (UAC), 25billion rubles (about $780 million) willbe invested in setting up a T-50 assemblyline at Sukhoi’s Komsomolsk-on-Amurfacility, which already houses the assem-bly line for Russian Air Force Su-35Smultirole fighters.

The Su-35S generation 4++ multi-role combat aircraft is expected to beoperated by the Russian Air Forcealongside the T-50. The Russian mili-tary placed an order for 48 of the type in2009. The first two airframes were deliv-ered in 2011, another eight followed lastyear. The type is now undergoing joinevaluation trials. Sukhoi reported earlierthat the results of the flight testing pro-gram had corroborated the design per-

formance parameters for the airframe,powerplants, navigation system, andother equipment. The aircraft demon-strated a maximum near ground air-speed of 1,400 km/h and 2,400 km/h ataltitude, and its maximum demonstrat-ed altitude is 18,000 m.

The Russian Air Force has also orderedtwo more warplane types from Sukhoi:the Su-30M2 twin-seat fighter and theSu-34 bomber. The latter are being as-sembled at another Sukhoi facility, inNovosibirsk. The military has inked twocontracts with Sukhoi for a combined124 of the type. Deliveries started in 2010.

The Russian Defense Ministry ex-pects Sukhoi to deliver 14 more Su-34this year. The first bomber was deliveredin May, two more batches followed inJuly and October. The 2014 productionplan for the Novosibirsk facility standsat 16 aircraft, the military reports.

According to Pogosyan, the Komso -molsk-on-Amur facility is planning todeliver 27 fighters to the Russian AirForce this year, and 19 more fighters in2014. Joint deliveries by the two Sukhoifacilities are expected to reach 51 fightersin 2015. Pogosyan says this is more thanone half of all the aircraft the DefenseMinistry has ordered from UAC.

Reciprocal affectionSukhoi fighters will remain the backbone of the Russian Air Force

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 2013 11

In the three years of testing theT-50 prototypes completed morethan 450 flights

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Maxim Pyadushkin

The long-delayed program toretrofit the Indian Navy’sVikramaditya (formerly theRussian Navy’s Admiral

Gorshkov) Kiev-class aircraft carrier isfinally nearing completion. According toRussian Deputy Prime Minister DmitryRogozin, the ship “will leave our watersand head for India on November 30”.The handover ceremony took place inSeverodvinsk, where the Vikramadityawas overhauled, on November 16.

The program to repair and upgrade theVikramaditya has been on at the Sevmashwharf since 2004. The carrier was givento the Indian Navy free of charge, but thecost of its refurbishment — initially esti-mated at $800 million – eventuallyreached $2.3 billion. The modernizationeffort included the removal of allweaponry from the ship’s foredeck,which was then extended and fitted with

a received a ski-jump ramp for MiG-29KSTOBAR capability. The Russian ship-builder de-facto created a new ship, asthe Vikramaditya also received advancednavigation and radar systems, as well asnew aviation control and communica-tions equipment.

The refurbished ship’s displacementwill exceed 45,000 tons. With a lengthof 283 m and a width of 59.8 m, thecarrier can accommodate a 1,924-strong crew, as well as 24 MiG-29Kfighters and six helicopters.

India in 2004 ordered 16 MiG-29K/KUB fighters from Russia, in-cluding 12 single-seaters and four twin-seaters. This deal, valued at $730 mil-lion, was followed in 2010 by a $1.2 bil-lion contract for 29 more of the type.

The MiG-29K is a profoundly mod-ernized version of the Soviet-era fighterof the same designation. The current

variant has an upgraded airframe with ex-tensive use degree of composites, a digitalfly-by-wire system, in-flight refueling ca-pability and new avionics, including a fullglass cockpit and a Zhuk-ME slot arrayradar. The MiG-29K features reducedradar signature and can carry greaterweapons loads, which include air-to-airand air-to-ground munitions.

Flight testing of the MiG-29K ver-sion for the Indian Navy started in 2007and was completed two years later witha test landing on the Russian NavyAdmiral Kuznetsov aircraft carrier.Deliveries started in 2009; the type wasofficially put into service with theIndian Navy in February 2010. In Maythis year, the Indian Navy commis-sioned its first MiG-29K squadron atHansa naval air station in Goa. At pres-ent the Indians operates about twodozen of these fighters.

The Vikramaditya was initially ex-pected to be handed over to the cus-tomer in December 2012. The deliverydate slipped one year after the ship suf-fered a malfunction in the steam boilersof its propulsion system during sea trialsin summer 2012.

A new round of trials in Russia’s Whiteand Barents seas was completed thisSeptember. According to Sevmash, theship reached a maximum speed of 29.2knots up on the design speed of 29 knots,proving the reliability of its powerplants.In the course of the trials MiG-29Kfighters performed 57 test flights from theVikramaditya with 47 subsequent land-ings on the carrier’s deck, including 12night-time take-off and landings. KamovKa-31R and Ka-27PL coaxial-rotor hel-icopters flew 30 sorties. Sevmash repre-sentatives say that since the beginning ofthe sea-trial phase in June 2012, theVikramaditya has spent 108 days at sea,covering 12,650 nautical miles.

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 201312

DEFENSE

India to receive ex-Russiancarrier in November

INS Vikramaditya MiG-29K fighter takes off from the

carrier’s ski-jump ramp

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Page 15: Russia & CIS Observer. Special focus on Dubai Airshow 2013

Maxim Pyadushkin

Russia’s largest air carrierAeroflot announced inOctober it was setting up a100% low-cost subsidiary

to be known as Dobrolet. The new car-rier is named for the first Soviet com-mercial air transport organization ofthe 1920s, which later served as the ba-sis for the creation of Aeroflot.Dobrolet is expected to begin revenueflights in spring 2014.

Aeroflot has not yet decided on aMoscow airport from which Dobroletwould be operating, but it is clear thatthe parent company wants to avoidcompetition at its Sheremetyevo homebase. Domodedovo and Ramenskoe arecurrently being discussed as possibleoptions. The former is the largest air-port in Russia, and home to Aeroflot’smain rivals Transaero and S7 Airlines,while the latter is used as a testing facil-ity and a cargo hub, as well as hostingthe biennial MAKS air show.

Dobrolet has no air operator’s certifi-cate as yet, but Aeroflot has already re-ported that its low-cost subsidiary will beinitially flying across the European por-tion of Russia. Eight destinations areplanned for the first year of operations:St Petersburg, Krasnodar, Yekaterin -gburg, Samara, Makhachkala, Ufa,Kaliningrad, and Novy Urengoy. In2015, Dobrolet plans to expand domes-tic operations to 19 destinations.Foreign cities such as Kiev, Yerevan, andIstanbul may be added in 2016.

In the first year, Dobrolet’s fleet willcomprise eight brand-new all-economyBoeing 737-800 narrowbodies.Aeroflot’s board on October 16 ap-proved the lease of these aircraftthrough several lessors, namely AWAS,BBAM Aircraft Management, Avolon

Aerospace Leasing, and SMBCAviation Capital. The fleet will be sub-sequently expanded by 8 aircraft peryear, says an Aeroflot news release.Aeroflot CEO Vitaly Savelyev earliermentioned that Dobrolet may also startoperating Airbus A320 family airliners.

Aeroflot announced its discounterplans in December 2012, saying that thegovernment should first accommodatethe project by amending the country’s airregulations to decrease the future carri-er’s operating costs. Savelyev reiteratedthis requirement at a recent Dobroletpresentation: “Low-cost carrier will nottake off in Russia if we do not harmonizeour legislation with the global standardssuch as non-refundable tickets, paid on-board meals and luggage, and [revocationof the current ban on hiring] foreign pi-lots. We expect the appropriate legislativedecisions to be taken by the end of thisyear. By doing so, the government willcontribute greatly to the launch of theproject of huge importance to Russia.”

Dobrolet will be headed by VladimirGorbunov, former CEO of now-de-funct Russian LCC Avainova. Like thecountry’s first budget airlineSkyExpress, Avianova ceased opera-tions in 2011 due to financial difficul-

ties. During their last year these two op-erators carried 942,000 and 1,049,000passengers, respectively, coming 15thand 13th in the top ranking of Russianairlines. Since that time, Russia has hadno national low cost carriers.

Aeroflot says it is planning to invest$100 million in the new subsidiary inthe first two years of its operation.Meanwhile, Aeroflot Group’s IFRSrevenue grew by 14% in the first sixmonths of 2013 to $4,132.6 million.Operating profit increased by 70% to$167 million. The release says thegroup’s net income totaled $1.5 millionover that period, compared to $7.1 mil-lion in the first half of 2012. Aeroflotexplains the net profit decrease by non-cash revaluation of finance lease liabil-ities denominated in foreign currency.

Besides Dobrolet and Aeroflot prop-er, Aeroflot Group includes several oth-er sister air carriers: St Petersburg-based Rossiya, Rostov-on-Don-basedDonavia, and Orenburg-based Orenair.Two more subsidiaries, Vladivostok Airand SAT Arilines, are in the process ofmerging to produce a new carrier,Aurora that will be performing domes-tic and international flights fromRussia’s Far East.

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 2013 13

AIR TRANSPORT

Aeroflot launchesa low cost subsidiary

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

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Page 16: Russia & CIS Observer. Special focus on Dubai Airshow 2013

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 201314

AIR TRANSPORT

Maxim Pyadushkin

Russian passenger air trafficcontinues to grow despitethe persisting nationwideeconomic recession.

Expectations are for the figure to ex-ceed 100 million passengers in 2013,according to a forecast by Russia’sTransport Clearing House (TCH), thenational agency charged with collectingair transport-related statistics. Russianairlines are projected to carry 38.2 mil-lion passengers domestically and 46.7million people on international routesthis year. A further 18.9 million passen-gers should be carried into or fromRussia by foreign airlines.

This means that the Russian air trans-port industry will demonstrate a double-digit growth compared to 2012, when thevolume of passenger traffic totaled 91.6million, including 35.4 million people ondomestic routes, 38.6 million on inter-national flights carried by Russian carri-ers, and 17.6 million carried by foreign

airlines. The industry on the whole hasseen a threefold increase in traffic vol-umes for the last 10 years since 2003,when a total of 34.6 million passengerswas carried, says TCH Vice-PresidentMarina Bukalova. She also notes that theshare of international traffic will hit 63%in 2013 against 61% a year before, and islikely to continue its domination in fu-ture as more direct international flightsget launched from Russian regions thustaking Moscow as the country’s majorhub out of the equation.

The TCH expectations have so farbeen confirmed by industry statistics.According to the Federal Air TransportAgency, Russian airlines carried 65.2million passengers on domestic and in-ternational routes in January throughSeptember, or 14.7% up year-on-year.Passenger turnover saw a 16% increaseto to 172.9 billion passenger-kilome-ters; the passenger load factor grew by1.4%, reaching 80.8%.

The growth in passenger transporta-tion slowed down a bit in September:

Russian airlines carried only 8.5 mil-lion people that month, just 9.7% up onSeptember 2012. Passenger turnovergrew by 7% to 21.7 billion passenger-kilometers.

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 largestairline, with 15.7 million passengerscarried by itself and almost 24 millionpassengers as a group, which also in-cludes Rossiya, OrenAir (8th in theranking), Donavia (12th), VladivostokAir (14th), and SAT Airlines. The lattertwo carriers are in the process of beingmerged into a new company namedAurora, which will operate domesticand international routes across Russia’sFar East.

The fastest growth among the top fivehas been demonstrated by Transaero.However, according to its 2013-18 de-velopment strategy, the airline is nowplanning to focus on improving its fi-

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RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 2013 15

AIR TRANSPORT

nancial performance at the expense ofnetwork expansion plans. The carrier’sIFRS revenues in the first half of 2013have reached 45.5 billion rubles (about$1.4 billion), and its net profit stands at464 million rubles.

Of the top 20 Russian airlines, themost impressive growth has beendemonstrated by charter operators suchas Kolavia, IFly, and Nordwind. Thislooks like the result of a successful sum-mer vacation season.

At the same time, Russian cargo traf-fic is evidently stagnating. The volumeof cargo and mail carried in the firstnine month of the year grew just by1.6% year on year to 730,322 tons,while the cargo turnover figure droppedby 1% to 3.7 billion ton-kilometers.September saw a 2.2% decrease in thevolume of cargo carried (85,481 tons),and a 10.3% slump in cargo turnover to410 million ton-kilometers.

In the meantime, air traffic in neigh-boring Ukraine continues to shrink.According to the Ukrainian StatisticsService, the country’s airlines carried6.1 million passengers in January

through September, down 4.3% on thesame period in 2012. Passengerturnover dropped 17.3% to 9.4 billion

passenger-kilometers. In 2012, air traf-fic in Ukraine totaled 8.1 million pas-sengers.

Key performance indicators for Russian civil aviation

Source: Federal Air Transport Agency

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 +16.0 21,678 +7%

Including:

International routes 113,277 +20.4 13,831 +5.6

Domestic routes 59,649 +8.4 7,847 +9.4

Cargo turnover, mln ton-km 3,696 -0.7 423 -7.6

Including:

International routes 2,967 -0.2 328 -6.9

Domestic routes 728 -2.5 94 -9.8

Passengers carried, thousand 65,239 +14.7 8,552 +9.7

Including:

International routes 35,487 +18.8 4,703 +7.9

Domestic routes 29,752 +10.2 3,848 +12

Freight and mail carried, thousand ton 730 +1.6 85 -2.6

Including:

International routes 508 +2.5 57 -1.9

Domestic routes 222 -0.3 28 -3.9

Passenger load factor, % 80.8 +1.4 83.2 +0.4

Including:

International routes 83.3 +0.7 85.2 -1.1

Domestic routes 76.5 +2.1 79.9 +2.6

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

Source: Federal Air Transport Agency

Ranking Airline Passengers carried, thousand Passenger km, million Passenger load factor, %Jan - Sep 2013 Year-on-year Jan - Sep 2013 Year-on-year Jan - Sep 2013 Year-on-year

change to 2012, % change to 2012, % change to 2012, %

1 Aeroflot 15,732 +18.4 45,362 +20.1 79.7 +1.2

2 Transaero 9,823 +21.6 36,294 +16.0 85.3 +1.4

3 UTair 6,352 +6.3 12,859 +10.8 78.9 +3.2

4 S7 Airlines 5,355 +12.2 10,730 +9.2 82.8 +1.6

5 Rossiya Airlines 3,589 +6.7 7,241 +4.6 78.1 -0.5

6 Ural Airlines 3,427 +26.6 9,092 +24.7 75.8 +2.8

7 Nordwind 2,656 +60.4 9,930 +54.9 88.0 -2.7

8 OrenAir 2,547 +4.6 8,873 +15.1 82.8 -4.6

9 Globus 1,723 +16.7 4,219 +23.5 84.5 +1.9

10 VIM-Avia 1,113 -6.1 2,451 -9.9 84.3 +2.0

11 Yamal 1,063 +54.0 2,136 +61.3 74.5 +6.7

12 Donavia 1,004 +37.1 1,506 +40.6 68.1 -2.7

13 NordStar 982 +10.6 2,632 +16.5 76.7 +2.9

14 Vladivostok Air 930 +1.9 2,190 -14.7 69.6 +1.1

15 Kolavia 915 +70.0 2,584 +88.8 89.8 -0.6

16 I Fly 870 +67.4 2,713 +55.1 91.1 -1.5

17 Yakutia 858 -6.1 2,660 -8.9 75.1 -0.2

18 Tatarstan 624 +64.7 1,559 +93.7 86.5 +12.0

19 Nordavia 589 -7.7 789 -7.8 74.1 +4.1

20 Rusline 411 -8.3 548 -28.5 72.6 -5.7

Page 18: Russia & CIS Observer. Special focus on Dubai Airshow 2013

RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 201316

BUSINESS AVIATION

Controversial growthStability on the Russian bizav market is good for everyone except theRussian market

Elizaveta Kazachkova

The Russian clientele, his-torically one of the driversbehind business aviationgrowth globally, has be-

come crucial both for the Europeanprivate charter market and for majorOEMs in the challenging post-crisisenvironment. Whereas otherEuropean countries are reporting a 3-5% year-on-year decrease in flight ac-tivity, or struggling to overcome thestagnation curve, Russian demand forprivate charters has been growing at amore or less constant rate for the pastthree years. According to the Avinodeonline bizav charter system, the trendis here to stay: charter requeststhrough the system grew 44% in 2011-2012, while in 2013 the growth“slowed” to a sound 21%. Eventhough Avinode warns these numbers

are not directly linked to actual flights,because the “look-to-book” ratio forRussian charter brokers is much lowerthan for their European colleagues,the statistics still correlates nicely withthe big picture: Russia is one of thestrongest and fastest-growing single-country bizav markets in the world,and its position is as stable as ever.

Stable not only in terms of strongdemand, but also in the market’s typ-ical features and in the persistentdrawbacks that inhibit natural devel-opment of the industry, which shouldnormally accompany such impressivegrowth. According to Avinode, thevast majority of private flights inRussia link Moscow with destinationsabroad, the most popular being Nice,Geneva, Dubai, Chambery, andLondon. The only domestic destina-tion that made it to the Top 10 isSt Petersburg (ranked 9th).

Wingx Advance data shows thatMoscow’s Vnukovo is one of the busiestairports in Europe, behind Luton,Geneva, and Le Bourget. TheVnukovo 3 bizav terminal handled19,587 flights in 2012, translating toabout 60 flights per day on average. Thenumber of business passengers servicedtotaled 137,874 people. In the first sixmonth of 2013 the terminal reportedaround 9,375 flights and 64,916 passen-gers serviced.

Russians traditionally prefer large-cabin, long-range jets for their privatetravel. The list of popular aircraft mod-els opens with the Embraer Legacy 600,and includes the BombardierChallenger 604 and Global Express,the Cessna Citation XLS, and a varietyof larger Gulfstreams and Falcons,Avinode notes. Heavy jets account for60% of all departures: 770 charterflights out of Russia were operated byACJs in May 2013. These figures fromthe Wingx Advance monthly monitorare a good illustration of the sheerRussian scale.

Many OEMs confirm these estima-tions. According to Dassault Aviation,the Falcon fleet in Russia and other CIScountries has doubled over the past fiveyears, with more than 60 Falcon jetsnow in operation. Seven new aircraftwere delivered to the region in the firsthalf of 2013 alone, accounting for some15% of Dassault Falcon’s worldwide de-liveries. Gulfstream Aerospace Pre -sident Larry Flynn has told Russia & CISObserver that 53 Gulfstream jets are nowoperated in Russia, and 23 more aircraftelsewhere in the CIS, comprising almost40% of the OEM’s European fleet.Airbus Corporate Jets reports it has de-livered more than 25 business jets toRussia and the CIS, or some 15% ofglobal Airbus business fleet.

Russians traditionally preferlarge-cabin, long-range jetsfor their private travel

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RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 2013 17

BUSINESS AVIATION

The number of business airliners sup-posedly owned by Russians but regis-tered, operated, and serviced outsidethe country is estimated at anywherebetween 350 and 550 units. The num-ber of Western-built aircraft officiallyoperated in Russia is below 50. Highimport taxes and VAT remain thelargest impediment to bringing Westernaircraft models to Russia and operatingthem under Russian jurisdiction.Nevertheless Bombardier forecasts 525new business-jet deliveries to the regionbetween 2012 and 2021.

Inside the country, a lack of oversightleads to an across-the-board practiceof domestic commercial flights on for-eign-registered aircraft being passed offas “private” (up to 75% of all domesticcharters). This is in breach of all possi-ble national and international cabotageregulations.

The local infrastructure has not im-proved much over the years. Apartfrom the new FBOs in St. Petersburg(which is about time, to say the least,since Russia’s northern capital is hometo the annual Economic Forum) andSochi (getting ready for the 2014Winter Olympic Games), no major im-provements have been made in termsof dedicated business aviation termi-nals and ground handling facilitiesacross Russia’s vast territory. A lack ofcompetition among FBOs at theMoscow airports results in unreason-ably high prices.

So, absurd as it may sound, this state-ment by Derek Bloom, Partner, CapitalLegal Services (the agency helpsRussian clients solve legal issues asso-ciated with acquiring and operatingbusiness jets in the country) best de-scribes the actual status quo: the busi-ness aviation industry in Russia is large-ly nonexistent. Huge amounts of mon-ey in the form of ownership fees, oper-ating expenses, FBO, handling andmaintenance costs, catering, staffwages and what not, end up outsideRussia and never reach the Russianeconomy on the whole, nor its businessaviation sector in particular. In his re-port, Bloom estimates the sum at nearly1 billion euros per year. What is robbing

Russia of all the benefits of developingthis segment?

“Several Russian owners have toldme that they would strongly prefer toregister their aircraft in Russia, exceptfor the single reason that they cannotafford to ‘waste money’ paying Russia’s18% import VAT,” Bloom says.“Russia’s import VAT may be easilyavoided by registering their aircraft inEurope instead. If a Russian individualwere to import an aircraft to Russia, thecost of the import VAT may become anunrecoverable cost for him or her. Incontrast, if a Russian business earnssignificant VAT from the domestic saleof goods and services, it can recover thecost of import VAT by offsetting its VATinputs against this VAT expense.

“Further, the supporting businessesfor business aviation in Russia havegeared themselves around servicingtransient foreign-registered aircraft,and earn quite high fees for doing so.Accordingly, Russian regulators andleading industry players have gottenquite used to things as they are, thoughthings as they are may not be inRussia’s best interests,” he argues.

Bloom, with his extensive experienceinterpreting the Russian legislation, be-lieves the recipe to solving the problemcomprises three steps: introducing anexemption from import VAT (whichwould be a very welcome regulatory re-form indeed); clamping down on cab-otage flights within Russia; and stimu-

lating competition among FBOs by de-manding that at least two different or-ganizations offer services in each sectorof every airport (commercial passengerairlines, cargo carriers, and businesscharters).

This is not to say that nothing is beingdone to change the situation. The localindustry body, the Russian UnitedBusiness Aviation Association(RUBAA), is doing what it’s there for.“We are working on three things,” saysExecutive Director Anna Serejkina,“These are lifting import taxes for air-craft with an empty weight of under 2tons [the import taxes for aircraft withempty weights between 2 and 20 tonshave already been abolished – ed.],creating a dedicated set of regulationsfor business aviation, and simplifyingcustoms procedures for business air-craft.”

However, there is one factor extrinsicto aviation per se which Bloom doesnot calculate into his projections (andof which RUBAA is probably very wellaware): the overall climate in Russia —stitched with details such as the securityof ownership rights, the fairness of jus-tice, people’s trust in the incumbent,business transparency, social stability,etc. — is quite unfavorable. This is whyit is safe to predict that even if certainimprovements finally occur, the major-ity of high-net-worth individuals willstill prefer to keep their expensive assetsoutside the country.

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

0

30000

60000

90000

120000

150000PassengersFlights

BIZAV TRAFFIC THROUGH VNUKOVO 3, 2002 - 6 MONTH 2013

Source: VIPPORT

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RUSSIA/CIS OBSERVER ! 3 (38) NOVEMBER 201318

SPACE BUSINESS

The future of Russia’s launchvehicle fleetIgor Afanasyev, Dmitry Vorontsov

Having a national fleet oflaunch vehicles is one ofthe key factors in ensur-ing a country’s inde-

pendent guaranteed access to space.Russia at present possesses a necessaryand sufficient variety of expendablelaunchers to achieve all the currentspace exploration goals, but the ageing

technical capabilities of these vehiclesnecessitate the development of new-generation rockets.

Russia’s light launch vehicles arerepresented by the Rockot, Dnepr,and Strela designs; its medium-classlaunchers are the Soyuz family and theRusso-Ukrainian Zenit model; thecountry’s heavy vehicle is the Proton-M. In the first nine months of thisyear, Russia performed 21 spacelaunches. Two Rockots together in-serted six communications satellites inorbit; nine spacecraft were orbited in11 Soyuz launches, alongside threeSoyuz TMA manned ships and threeProgress M resupply vehicles; sixProtons delivered a total of eight satel-lites (one of these launches failed);one Dnepr carried a South Koreansatellite to orbit, and one Strela lofteda Kondor-E radar satellite. A Zenit or-bited Israel’s Amos-4 telecom satel-lite. Another 13 launches are plannedbefore the end of the year.

Russian launch vehicles have suffi-cient thrust-to-weight ratios, relativelyhigh reliability, and come with anagreeable launch price tag. These fac-tors, as well as the high frequency oflaunches (by Western standards), makethem internationally competitive. As aresult, Russia leads the world in thenumber of commercial space launcheswith 40% of the market.

The cost of launching a Soyuz indifferent modifications, depending onwhether the mission is commercial orin Russia’s government interests,varies between $35 million and $85million. For the less powerful USDelta II rocket, the price range is $65million to $95 million. A Proton-Mcommercial launch costs around $90mln, against $150 million for the sim-ilar-payload US-made Delta IV

Medium+, $150-180 million for theAtlas V, and some $220 million for theESA Ariane 5. It should be noted thatall these figures come from differentsources, including unofficial ones,and are therefore fairly approximate.

However, Russian rockets have anumber of shortcomings that affecttheir competitiveness. The primaryshortcoming is their insufficient capa-bility of inserting spacecraft in high-energy orbits and departure trajecto-ries. Due to the medium energy per-formance of the fuel components used(such as liquid oxygen plus keroseneor nitrogen tetroxide plus unsymmet-ric dimethylhydrazine), and also be-cause of the relatively low structuralefficiency of their upper stages, theperformance of Russian launch vehi-cles quickly degrades with the increaseof the required launch speeds. In themeantime, modern telecom satellitesare growing increasingly heavier,pushing the capabilities of Russianlaunch vehicles to the limit.

Another factor is that the currentRussian rocket designs are based ontechnology of the 1950s and 1960s,and incorporate components manu-factured across the country with ex-tensive use of mechanical processingoperations on specialized tools. As arule, readying a rocket for launch re-quires significant manual labour in-puts by a large group of specialists atthe launch site. As wages grow, sodoes the cost of manufacturing andoperating these launch vehicles, par-ticularly in the situation when theirproduction rates have stayed un-changed for many years. Certaincomponents have already gone out ofproduction, or they cost too much tomanufacture (this concerns, in par-ticular, instruments based on 50-

Russia leads theworld in the number

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SPACE BUSINESS

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

One more oft-criticized deficiency ofcertain Russian launchers is that theyrun on toxic fuels.

Finally, due to the general skill fadein the industry and continuing degra-dation in process discipline, the relia-bility of Russian rockets has recentlybeen raising concerns. Suffice it to re-call the loss of three Glonass satellitesin the failed launch of a Proton-M onJuly 2, 2013.

It is obviously high time the Russianfleet of launch vehicles got renovated.For this purpose, a comprehensivemodernization program has been onsince the mid-1990s. However, unsys-tematic funding has resulted in massivedelays in implementing this effort. Theslipping schedule is affecting not justthe image of the design houses involvedbut also the competitiveness of Russianlaunchers on the international market.

The Angara family of new modularrockets is designed to launch light,medium, and heavy satellites into high-energy orbits from a new launch site atPlesetsk Cosmodrome. Flight testsshould start in 2014, so that the Angaracould replace the Proton-M after theyear 2020 (the Proton-M would then beretired). A heavy-class oxygen-hydro-gen booster will help preserve Angara’scompetitive advantages in launchingmassive geostationary satellites evenfrom Plesetsk, thus making the rocket’sperformance comparable to foreignequivalents. The booster is expected toenter flight tests in 2015.

The light-class Soyuz-2.1 launch ve-hicle is set to begin flight trials in late2013. This rocket could be launchedfrom the existing launch pads atPlesetsk, and also possibly fromKourou in French Guiana.

On the other hand, these new vehi-cles are not going to resolve all the ac-cumulated problems of Russia’s spaceindustry. Work to develop the Angarafamily, for one, is taking too long.Many of the technical solutions imple-mented in the program were decidedon at the spur of the moment; a numberof options were never realized at all,

and in order to implement others, theupper stages have had to be redesignedin a departure from the very principleson which the entire Angara conceptrests. The size of the modules consti-tuting the Angara family, as well as theparameters of the launch site (which isbuilt on a Zenit launch site whose con-struction was abandoned in the 1990s),put a cap on any further increase in theperformance of these launch vehicles.Critics note in this connection that theeffectiveness of the Angara family is notthat obvious.

The Soyuz-2.1 implements palliativesolutions based on a combination ofobsolete technology and a relativelynew (but still four-decades-old) NK-33engine with advanced instrumentation.The projected launch cost for this rock-et is in no way appropriate for a light-class launch vehicle.

The now-defunct Rus-M programwas an attempt to develop a principallynew launch vehicle, but exorbitantcosts involved in the development, andalso the fact that the Rus-M’s function-ality would partially overlap that of theAngara family, resulted in the programgetting scrapped in October 2011.

Therefore, the problem of developinga future Russian fleet of launch vehiclesremains pretty much unresolved.Hence are the current active R&D ef-forts in this area.

Samara-based TsSKB-Progress is de-signing a family of rockets codenamedSoyuz-5, to be based on newest tech-nology including engines running onliquefied natural gas. If the project isapproved and enough funding becomesavailable, flight tests of the first variantmay begin in 2020-22.

One promising program isKhrunichev Centre’s MRKS-1reusable launcher. Khrunichev says itspartially reusable launch vehicles withhigh payload capacity (originally 25-35tons, and eventually up to 60 tons) willoffer two to five times greater efficiencythan the existing vehicles.

The next phase in the development ofRussian launch vehicles is linked topossible future manned missions to theMoon and Mars. It is obvious that suchmissions, expected to be implementedbeyond 2020, will require the creationof super-heavy launch vehicles capableof inserting over 60-70 tons of payloadin low Earth orbits. Research in thisarea is being conducted by all Russianspace enterprises. What is required is anopen-architecture rocket whose pay-load capacity could be upgraded to130-180 tons. A final decision has notbeen taken yet, because the technicalspecifications of the future interplane-tary missions are still unclear, as is thecomposition of possible participants insuch programs.

Flight tests of modularAngara launch vehicleshould start in 2014

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Igor Afanasyev

Nearly all the currentlaunch vehicles used forinserting satellites intoEarth orbits and placing

spacecraft on interplanetary trajecto-ries utilize rocket engines which runon chemical fuels. This technology isalready exhausting its upgrade poten-tial, especially in terms of fuel effi-ciency, so experts believe that switch-ing to nuclear-powered launchers isthe way to go.

At the MAKS 2013 air show held inZhukovsky outside Moscow this

August, a team of Russian companiesincorporated under the umbrellas ofthe Federal Space Agency(Roscosmos) and the State NuclearEnergy Corporation (Rosatom) pre-sented a project to develop amegawatt-class nuclear power propul-sion system that would be used for in-terplanetary missions and for deliver-ing satellites into high-energy orbits.Research into this technology was or-dered by the Russian president back inJune 2010. N.A. Dollezhal ScientificResearch and Design Institute ofEnergy Technologies (NIKIET) isworking to develop the reactor in con-junction with the Podolsk ResearchInstitute of Technology (PNITI),Kurchatov Institute, Obninsk Institutefor Physics and Power Engineering,and other Rosatom subsidiaries. Therest of the propulsion system will bedesigned by the Keldysh Centre,Energia Corporation, ChemicalEngineering Design Bureau, ChemicalAutomatics Design Bureau, and otherRoscosmos subsidiaries. The project’s2010-2018 budget exceeds 17 blnrubles ($527 million).

Work has already progressed to rigtests on individual components of thepropulsion system, whose prototype isto be built by 2018. The system will bedesigned to travel to a low-earth orbiton board Proton or Angara launch ve-hicles.

The USA and the Soviet Union usedto actively research nuclear-poweredspace propulsion technology in the1960s and 1970s. The original idea wasto create an engine in which hydrogenwould be heated in a nuclear reactorand then escape through a nozzle, thusproducing thrust. This option was laterscrapped as inefficient: although thetechnology can produce considerable

thrust for a brief period of time, a reac-tor malfunction may contaminate theescaping gases. In addition, heating hy-drogen to 2,500-3,000°C is not a trivialtask and requires first solving numerousproblems related to material engineer-ing, radiation tolerance, environmentalsafety, etc. Owing to these complica-tions, further work in this area waseventually abandoned.

The current proposal is to use a nu-clear reactor for power generation; gasis fed through the reactor core and ro-tates a turbine, which drives an electricgenerator and a compressor. The com-pressor provides for closed-loop circu-lation of the working medium, elimi-nating any possibility of environmentalcontamination. The generator providespower for a plasma electric thruster,which consumes at least 20 times lessworking medium than chemical equiv-alents.

The project pioneers a host of inno-vative technology solutions, includinga highly efficient energy conversionscheme; a compact high-temperature,fast-neutron reactor with gas coolingsystems and nuclear/radiation safetyensured in all phases of operation; uti-lization of high-density fuel; a servicepropulsion system comprising severalpowerful, highly efficient electricthrusts; high-temperature turbinesand compact heat exchangers with adesign service life of 10 years; power-ful, high-rpm electric generator con-verters; and large-area structures(heat exchange radiators) deployablein space.

The project to develop a megawatt-class nuclear power propulsion systemwill help the Russian space industrycreate a new generation of powerfulpropulsion modules for future spaceexploration programs.

Nuclear power for space applications

A prototype of Russia’snuclear power propulsion

system should be built by 2018

ATO

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2014

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