Russia/CIS Observer, 29-30

Russia& CIS ObserverRussia& CIS ObserverQUARTERLY№ 2–3 (29–30) july 2010

special focus on farnborough internat ional 2010special focus on farnborough internat ional 2010

RUSSIA/CIS OBSERVER № 2–3 (29–30) JULY 2010 1

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• AEROSPACE INDUSTRY

Russia’s MS-21 program awaits

launch orders ......................................2

Regional aircraft

for international market ......................4

Superjet 100 completed water

ingestion trials......................................6

SaM146 engine gets EASA approval ....6

Italian helicopters come to Russia ........8

Hip enough to upgrade ......................10

Unmanned Russian Helicopters ........12

• DEFENSE

The Russian Air Force wants to

speed up the T-50 fighter testing ........14

MiG-35 in radar testing......................15

The Military Transport Aviation

is planning for new aircraft ................16

• AIR TRANSPORT

Air transport relations between Russia

and European Union..........................18

Russia has specialized airlines now ....24

• BUSINESS AVIATION

Recovery of the Russian bizav market

gives hope to local operators ..............27

• SPACE BUSINESS

Murky future for Sea Launch..............30

ISS-Reshetnev offers next-generation

comsats ............................................32

Russia/CIS Observer Quarterly is produced by:

PublisherEvgeny Semenov

Editior-in-ChiefMaxim Pyadushkin

Art DirectorAndrey Khorkov

Director, Marketing & AdvertisingKonstantin Rogov

Commercial DirectorSergey Belyaev

Translated By:Andrey Bystrov

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RUSSIA/CIS OBSERVER № 2–3 (29–30) JULY 20102

AEROSPACE INDUSTRY

Maxim Pyadushkin

Russia’s new MS-21 short-to-medium range airlinerremained on paper for quitea long time, but now cus-

tomers seem to feel more confidentabout the program. In early June, IrkutCorporation, the MS-21 designer,signed a preliminary agreement withMalaysian Crecom Burj Bhd investmentfund for 50 aircraft. The deal is estimat-ed at $5 billion, with the first delivery tobe made in 2016. Malaysian media havecited Crecom Burj representatives assaying that they plan to lease the MS-21s to airlines from Southeast Asia.

“It’s great that we have seen the firstinterest in our aircraft”, says Alexey Fe-dorov, president of Irkut’s parent com-pany United Aircraft Corporation(UAC). A firm contract will be inked in afew months. Fedorov promises that bythe first quarter of 2011, UAC will havelanded the 50-70 firm orders needed tolaunch production of the first prototypes.

According to Irkut, more clients areexpected to be announced at Farnbor-ough International 2010, where the de-signers will for the first time demon-strate full-size mock-ups of the MS-21cockpit and passenger cabin. Talks arereportedly under way with both Russianand foreign customers.

Fedorov names the Russian Tech-nologies state corporation as a possibleRussian launch customer. This giantstate-owned industrial holding controlsseveral Russian air carriers, includingthe country’s fourth largest airline interms of passenger kilometers, StPetersburg-based Rossiya. Earlier Rus-sian Technologies wanted to merge itsaviation assets into a single airline to ri-val Russia’s flag carrier Aeroflot, buteventually it agreed to hand these air-lines over to Aeroflot. In exchange thecorporation expects to get a stake inthis largest domestic airline.

UAC has previously run in a RussianTechnologies tender for 50 short-to-medium range airliners, bidding with amix of Tupolev Tu-204SM and MS-21aircraft. But in May 2010 the corpora-tion preferred the Boeing 737NG as asolution for renewing the fleets of itssubsidiary airlines. Nevertheless, Fe-dorov hopes that Russian Technologieswill support the MS-21 program withorders as some of the corporation’s in-dustrial subsidiaries participate in theprogram as systems suppliers. For ex-ample, Russian Technologies-con-trolled Avionika and Aviapribor Hold-ing were selected to develop the MS-21avionics suite in cooperation withRockwell Collins. Russia’s UnitedEngine Corporation, which Russian

Technologies controls through theOboronprom investment fund, is devel-oping the PD-14 engine for the futureairliner.

The MS-21 development effort start-ed in the early 2000s. This new single-aisle aircraft, with a passenger capacityof between 150 and 200 and a range of5,000 km, is targeted at the most popu-lar segment of Russian air transport. Itwill replace ageing Soviet designs,mainly the Tupolev Tu-154.

In 2009 the program passed the Gate3 milestone, which involved the ap-proval of the aircraft’s preliminary de-sign. Also by the end of last year, Irkutselected the major subsystems suppli-ers, including the alternative engine de-signer. Now customers can choose be-tween a Russian and a foreign power-plant. The domestic option is the PD-14, while Pratt & Whitney will developa special version of its PW1400G gearedturbofan engine with a thrust of 14 tons.

The US company Hamilton Sund-strand and Zodiac Aerospace of Franceare some of the other major suppliers.The Americans will supply the APU, thewing de-icing system, and the integratedair-conditioning and fire protection sys-tem. Zodiac and its subsidiaries will de-velop the electric, fuel and oxygen sys-tems and interior design. The MS-21’shydraulic system will be designed by Ea-ton Corporation, but more than 50% ofwork on its components and assemblyparts will be outsourced to Russianmanufacturers. Russia’s Hydromashcompany will produce the landing gear.

The program is currently at the work-ing design stage, with production of thefirst prototypes expected in 2011. Thesmallest, 150-seat MS-21-200 familymember is to make its first flight in2014, and should achieve Russian andEASA certification in 2015 and 2016,respectively.

Off the shelfRussia’s MS-21 program awaits launch orders to begin prototype assembly

At Farnborough International 2010 IrkutCorporation will for the first time demonstrate

a full-size mock-up of the MS-21 cockpit

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AEROSPACE INDUSTRY

— The certification program is nearingcompletion. To what extent has the air-craft confirmed the advertised eco-nomic advantages?

— It’s no secret that during the de-sign phase, we targeted lower directoperating costs about 10% comparedto our key competitor, the Embraer190/195. So far, we have managed toreach good fuel efficiency, lift-dragratio and weight characteristics, sothat now the certification tests areconfirming that our direct operatingcosts are 6-8% lower. That’s not yetthe 10% we are after, but it still meansserious savings for operators.

— What markets, apart from Russia,is the aircraft aimed at? Can it reallybreak into the segments already occu-pied by competition?

— Our aircraft was conceived as aregional airliner not only for Russia,but also for the international market.This is why its runway performance,range and other capabilities allow forunrestricted operations in Siberiaand the Middle East, from shortEuropean runways and in the Asia-Pacific region, covering distances ofup to 4,500 km. This aircraft is de-signed to the highest internationalstandards, and we expect it to be amarket success.

This success must be secured, first ofall, through the aircraft’s highly at-tractive operating costs and economicefficiency. In terms of specific cost perpassenger and cost pre flight, we arebetter than the Embraer 190 by 6-8%.

In terms of total fuel burn per sectorwe are at the same level as the AntonovAn-148, but it accommodates 22 few-er passengers.

Also, we have better noise andemissions margins than our competi-tors. At present, all our rivals arewithin ICAO Chapter 4 standards,whereas we have a margin of about10-13 EPNdB. So if Chapter 5 mate-rializes, we will be comfortably with-in it, while our competition will haveto think seriously about re-enginingtheir existing products. We also have aserious margin under CAEP 6 emis-sion standards.

In terms of passenger comfort, theSuperjet 100 offers levels that arecomparable to those of mainline air-

craft. This will become evident if wecompare its passenger cabin cross-section and ceiling height to othermainline and regional models.

— What are the current developmentplans for the Superjet model range?

— First of all, in the framework of theongoing program, we must completecertification of our baseline aircraft. By2012, the Long Range variant will hitthe market. Therefore, we will com-plete the creation of the baseline plat-form for our civil aviation programs.

In parallel with this, we will launch adevelopment of the Sukhoi Business Jet(SBJ). It will be derived from the base-line aircraft. Redesigning the wing andfuel system will increase its range to7,500-8,000 km. There will be otherchanges unique to business aviation,such as built-in airstairs and business-class passenger cabin but overall, thebaseline model allows for a fairly quicklaunch of the SBJ model — we are aim-ing for around 2013.

For further developments, we believethe most promising future product willbe a larger aircraft that could be dubbedSSJ100 New Generation at the mo-ment. In this segment, the market isawaiting the advent of our Canadiancompetitor’s CSeries aircraft, but evenafter it emerges, there still will be a win-dow of opportunity in this marketniche. The passenger capacity of ournew aircraft is being defined at the mo-ment, but I can already say that it willmake wider use of composite materialsand new technologies.

— Will the new model require newengines?

Yes, we study current options andnew offers at the moment. We expect togive this project a conceptual frame-work this year, and present it to themarket in 2011.

Regional aircraftfor international marketThe upcoming completion of the Sukhoi Superjet 100’s certification program –and the startup of deliveries – are expected to give a big boost to its promotion inthe international regional aircraft marketplace. Dmitry Matsenov, the senior vice-president for strategic development at Sukhoi Civil Aircraft Corporation (SCAC),reviews the Superjet 100’s competitive advantages, current marketing plans, andprospects for further evolvement of the Superjet model range.

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AEROSPACE INDUSTRY

In early June, Russia’s new SukhoiSuperjet 100 regional airliner made

another important step towards certi-fication. The second prototype air-craft, number 95003, successfullycompleted the test program aimed atevaluating engine protection againstrunway water ingestion at a full rangeof speeds (from 10 to 150 knots) anddifferent engine settings precedingtake-off. The tests took place in a spe-cial pool constructed on a runway ofthe Gromov flight research institute inZhukovsky.

The aircraft accomplished a total of27 runs along the 70-meter-long poolfilled to 40 mm with water. Special at-tention was paid to the engine perfor-mance at low speeds and take-off pow-er settings as well as at maximum re-verse thrust. The Superjet 100 programhas often been criticized for its low-hanging underwing engine design.This, opponents argued, could lead toforeign objects getting into the air in-takes from the runway. But the trials inZhukovsky demonstrated that that wa-ter does not hit either the engine air in-

takes or the auxiliary power unit whilethe aircraft runs along a wet runway.The absence of water ingestion wasconfirmed by standard cockpit engineperformance indication, by video andphoto output from cameras mounted atvarying distances from the pool, andfrom mini-cameras attached to thelanding gear of the aircraft. Moreover,the tests confirmed that the aircraftgoes steadily along a wet runway at

speeds of up to 150 knots (275 km/h)and can be easily handled by an aver-agely skilled pilot.

According to Sukhoi Civil Aircraft,the developer of the Superjet 100, thecertification program is close to com-pletion. The designers hope to obtain aRussian certificate by the end of thisyear, after which first deliveries canstart. EASA certification is expected inthe first half of 2011.

Superjet 100 completed water ingestion trials

On June 23, the SaM146turbofan engine jointly

developed by Russia’s NPOSaturn and Snecma ofFrance exclusively for theSukhoi Superjet 100 regionalaircraft, received a type cer-tificate from the EuropeanAviation Safety Agency

(EASA). Thus it became thefirst Russian-built aero en-gine certified under theEuropean regulations.

Receiving the certificate,Jean-Paul Ebanga, Chair-man and CEO of the Russo-French Powerjet joint ven-ture that runs the SaM146program, said: “This is alandmark in relations be-tween the European andRussian aerospace industries.We are now looking forward

to seeing the SaM146 enterrevenue service in the nextfew months.”

The SaM146 completed itscertification tests at the endof May by passing the finalmedium bird ingestion test.During the certification testprogram the engine logged7,100 hours, including 3,500hours in flight. According toNPO Saturn, the engine’sapproval from the Russianaviation authorities is expect-ed within several weeks.

The end of certification willmake it possible to ramp upSaM146 production. Theshortage of powerplants has

seriously delayed the certifica-tion trials of the Superjet 100itself. But now the Russiangovernment plans to supportNPO Saturn. When visitingthe company in mid-June,Prime Minister VladimirPutin told about the possibili-ty to allocate additional bud-get funding to launch the en-gine’s serial production. NPOSaturn intends to deliver 13powerplants to Sukhoi CivilAircraft by the end of the year,and to increase its output to 33engines in 2011. According toPutin, the annual productionrate should grow up to 140 bythe year 2014.

SaM146 engine gets EASA approval

Patrick Goudou, ExecutiveDirector of EASA (left), presentsthe SaM146 type certificate toJean-Paul Ebanga, Chairman andCEO of PowerJetE

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The trials in Zhukovsky demonstratedthat that water does not hit the Superjet100’s engine air intakes


AEROSPACE INDUSTRY

Vladimir Dolotov

The Italian helicopter ma-nufacturer AgustaWestlandcontinues its active expan-sion into Russia. A joint pro-

ject with Russian Helicopters waslaunched on June 22 in the town ofTomilino, Moscow region, to build anassembly facility for AW139 light twin-engine helicopters. The facility shouldopen in 2011, and is expected to assem-ble five airframes during its first year.

The partners started their cooperationfew years ago. The assembly line will beoperated by the HeliVert joint venture,in which Russia holds 40% and Italyowns 60%. Russian Helicopters Gener-al Director Andrey Shibitov says theHeliVert paperwork should be signedthis summer. “Almost all the documentshave been initialed, now lawyers on bothsides are ironing out the final details ofthe shareholders’ agreement,” he says.

The partners are planning to ramp upannual production to 24 airframes by

the year 2015. Total investment in theproject stands at some 40 million euros.The joint venture should break even ineight years from launch. Its productswill be marketed in Russia and CIScountries, and also will be distributedvia AgustaWestland’s international salesnetwork. There are as yet no firm or-ders for Russian-assembled AW139s,but undisclosed customers have togeth-er committed to some 10 aircraft.

The partners expect the demand forthe AW139 in Russia to grow after the

type receives local certification for a fullice-protection system in mid-2010. Atthe Moscow HeliRussia 2010 exhibitionin May, AgustaWestland announced itsfirst Russian AW139 customer – theAviaservice company operating underthe HeliClub brand. HeliClub currentlyhas one AgustaWestland AW109 lighthelicopter, which has clocked 350 flighthours over the 18 months of operationin a variety of weather conditions, saysGeneral Director Alexey Barkhotov.The company plans to use its new

AW139 that will be still imported, forcharter passenger services from its heli-port outside Moscow.

As of late May 2010, AgustaWestlandhad sold in Russia nearly 20 new-gener-ation helicopters of different models. In2009 only four of them were used bycommercial operators that rest is evi-dently registered in general aviation sec-tor. A company representative has toldRussia & CIS Observer that under anagreement signed with Russia’s largesthelicopter operator UTair Aviation in

December 2009, AgustaWest-land will assist the carrier withputting the AW139 in serviceover the next few years. UTairpilots and technical personnelhave already done type train-ing. Rather than buying thehelicopters from AgustaWest-land, the airline will mostlikely operate the rotorcraft inthe interest of other Russiancompanies.AgustaWestland has appoint-ed commercial helicopteroperator Aerosouz, basedoutside Moscow, as its au-thorized service center forRussia. Aerosouz will pro-vide maintenance and repairservices and maintain a

spares inventory, helping the manufac-turer provide an even higher level ofservice to its Russian customers. As theRussian fleet of AgustaWestland heli-copters keeps growing, new servicecenters will be inaugurated across thecountry to maximize the fleet’s opera-tional effectiveness.

Aerosouz, for its part, plans to ex-pand to other Russian cities. Its servicesinclude light commercial helicopteroperations, rotorcraft sales, after-salessupport and pilot training.

Italian helicopterscome to Russia

HeliClub has placed the first Russian orderfor AW139 that will join another Italianhelicopter AW109 (on the photo) alreadyoperated by the company

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AEROSPACE INDUSTRY

Maxim Pyadushkin

The Russian Helicopters hold-ing company, the umbrellaorganization for the coun-try’s rotorcraft industry, has

unveiled plans to modernize its best-selling Mil Mi-8/Mi-17 Hip mediumhelicopter family. A mock-up of the up-graded model, dubbed Mi-171M, wasrevealed at HeliRussia 2010 exhibitionin Moscow in May. The improved rotor-craft should make its first flight in 2011and enter service in 2013. The manufac-turer hopes that the new model will findboth civil and military customers.

The Mi-171M will be a further devel-opment of the 11-ton class Mi-17 ro-torcraft. In 2009 Russian Helicoptersdelivered to Russian and foreign cus-tomers 139 Mi-8/Mi-17 family heli-copters, accounting for 76% of totalsales for that year.

The designers promise to apply morethan 80 innovations in the new version. Itwill receive the more powerful KlimovVK-2500 turboshafts, modernized APU,main gearbox, swash plate, main rotorhead and transmission, as well as compos-ite main rotor blades and an X-type tailrotor. Another focus will be on onboard

equipment that will enable the aircraft tobe piloted by a crew of two. The Mi-171Min basic configuration will be equippedwith digital autopilot, with a glass cockpitoffered as an option. Russian Helicoptersalready retrofits current modifications ofthis family with new avionics. Earlier thisyear the manufacturer reported the firstdelivery, to India, of the modernized Mi-17V5 version with new onboard equip-ment and digital autopilot.

These innovations should improvethe helicopter’s performance. Its rangewith the main tanks will grow from thecurrent 610 km to 850 km, and its ex-ternally carried load capacity will in-crease from 4,000 to 5,000 kg com-pared to the current Mi-171 version.The new helicopter is expected to havebetter directional control and hover athigher side wind speeds. The designersalso promise to increase the aircraft’slife cycle and time between overhauls.

Andrey Shibitov, head of Russian Heli-copters, has told Russia & CIS Observerthat the Mi-171M will be assembled inseveral versions: for transport, passengerand search-and-rescue applications. “Wemay also have a modification for off-shore operations for such customers as,for example, Gazpromavia,” he says.

The new model may find military ap-plications as well. Now more than onehalf of exported Mi-8/Mi-17 heli-copters are purchased by foreign mili-taries, mainly by former Soviet allies.Russian Helicopters has recently deliv-ered several of these aircraft to theCzech Republic and Croatia, Shibitovsays, adding that contracts with someBalkan countries are being discussed atthe moment.

Another potential customer for themodernized helicopter is the interna-tional forces in Iraq and Afghanistan.Now the coalition forces widely useMi-8 family rotorcraft, delivered by theRussian manufacturer through theUAE-based Airfreight Aviation compa-ny. The aircraft are supplied in civiltransport configuration, with their nav-igation and communications equip-ment adapted to the coalition stan-dards. The latest such deal was signedin August 2009, and calls for delivery of20 Mi-171s. In November 2009 Rus-sian Helicopters and Airfreight Avia-tion opened the International Ro-torCraft Services joint venture in Shar-jah that will provide customization andmaintenance services for the Russian-built helicopters in the Middle East.

The Mi-171M model will be certifiedunder Russian AP-29 rules by the endof 2012. The program sets an addition-al goal of obtaining an EASA certificatein order to promote foreign sales, butthis issue is still being discussed,Shibitov says. The first prototypeshould be assembled at the Ulan-Udeaircraft plant, one of the two facilitiesthat manufacture Mi-8/Mi-17 familyaircraft, in 2011. Series production is tobe launched in 2013. The designershope to preserve the main advantage ofthe Hip family, which is a more attrac-tive price than foreign competition, butalso promise that the Mi-171M’s oper-ating expenses will go down comparedto the current modifications.

Hip enough to upgrade

The modernized Mi-171M will be assembledin several versions: for transport, passenger,search-and-rescue and off-shore applications

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AEROSPACE INDUSTRY

Denis Fedutinov

The Russian Defense Min-istry plans to select a localsupplier of unmannedsurveillance and target des-

ignation aircraft. “The flight trials ofpossible candidates will be conductedthis summer”, the first deputy defenseminister Vladimir Popovkin told at theend of June at Engineering Technolo-gies Forum, a defense show held inZhukovsky, near Moscow. He addedthat about 10 Russian manufacturerswill take part in the trials.

This looks like another try of theRussian military to find an acceptableunmanned aerial vehicle (UAV) for itsneeds. Popovkin confessed that previ-ous attempts to develop an indigenousUAV were unsuccessful what made theDefense Ministry to purchase a dozenof Israeli-made aircraft, including BirdEye 400 mini-UAVs and 400 kgSearcher Mk II tactical reconnaissancedrone in 2009. Earlier Popovkin ex-plained that the Israeli aircraft havebeen purchased only to develop themethods of UAV operational use andtrain personnel.

Now the Defense Ministry set a newrequirement to the Russian UAV de-signers. “It’s important for us to see thequality of transmitted images, its im-munity to countermeasures as well asthe level of data-transmission channelsprotection”, explained the deputy de-fense minister.

One of the possible suppliers is Rus-sian Helicopters holding company thatplans to participate in the tender withits new unmanned rotorcraft. The com-pany is developing UAV systems in fourclasses: long-range (over 400 km),medium-range (up to 400 km), short-range (up to 100 km), and very-short-range systems (up to 25 km). One orseveral products will be offered in eachcategory. Gennady Bebeshko, head of

unmanned programs at Russian Heli-copters, says the model range will re-flect the domestic and internationalmarket demand. The designer showedtwo of its projects as full-size mock-upsat the show in Zhukovsky.

One was the Kamov Ka-135 piston-powered coaxial-rotor UAV helicopter,with a take-off weight of 300 kg. Thevehicle has a payload capacity of up to100 kg, operational radius of 100 kmand maximum endurance of 3.5 hours.Possible applications include environ-mental monitoring and patrol duties.

The other UAV project, Korshun, isbased on the Patrul 500-kg light heli-copter by the Kumertau aircraft plant.Korshun is a medium-range vehiclewith a 300-km operational radius, 6-hour endurance, and capable of carry-ing a 100-kg mission payload. The sys-tem will be available in different mis-sion-specific versions: for surveillance,freight transportation, and as a data re-lay system for isolated areas.

Most unmanned systems out there aredual-use products. Judging form theircharacteristics, the Russian HelicoptersUAVs can have both civilian and militaryapplications. The plan is to achievemaximum operational flexibility: thesystems’ modular design will reduce the

assembly and deployment times, andthere will be three to four different typesof interchangeable payloads.

According to Bebeshko, developing aUAV platform poses no difficulties toan experienced rotorcraft specialist.There are, however, certain problemswith aircraft controls. Russian Heli-copters has launched an effort to createan automatic UAV control system thatcould be used in all flight phases. In or-der to cut the costs and time of devel-opment, the prototype will be tested ona Patrul platform.

Some of the Russian Helicopters en-terprises have prior experience develop-ing unmanned systems. The Kamovdesign bureau worked on the Ka-37and Ka-137 UAV rotorcraft projects inits time, and the Mil helicopter plantonce looked into building an un-manned version of its Mi-34 light heli-copter. So it is no accident that the twoenterprises now have the key role in theparent company’s UAV program, andselect suppliers depending on the re-quirements of each individual project.So far the company is investing its ownfunds, but there is hope that financialsupport will be provided by the DefenseMinistry if it selects some of the sug-gested unmanned aircraft.

Unmanned Russian Helicopters

The representatives ofRussian Helicopters

promise that if the500-kg Korshun

surveillance UAV isselected by the Russian

military, the firstprototype can take off

in two years

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HELIRUSSIA 2011(May 19-21, Moscow)Russia’s fourth international exhi-bition of the helicopter industry

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2011


DEFENSE

Maxim Pyadushkin

The Russian Air Force plans toreceive its first Sukhoi T-50fifth-generation fighters in2012-2016. It could be a pre-

production batch of six to 10 aircraft,Vladimir Popovkin, deputy defense min-ister on armaments, said in June. Theproduction of this batch will be launchedin 2012 after the new fighter gets a pre-liminary approval from the military. Mostof the trials should be completed by 2015,while serial production is to start in 2016.At the first stage the Air Force may ordermore than 50 aircraft, said Popovkin.

The T-50 has been in development bythe Sukhoi company under the PAK FA(Perspektivny Aviatsionny KompleksFrontovoy Aviatsii, or Future TacticalAviation Aircraft System) program since2002. The new aircraft is intended to re-place the Russian Air Force’s Su-27fighters. T-50 is definitely shaped forstealth with its chined forward fuselage,planform edge alignment, internalweapons bays and small vertical tails.According to Sukhoi, the aircraft’s fuse-lage is 30% made of composites, whileits shape and special coating will allowthe T-50 to demonstrate an unprece-

dented small radar cross section in theradar, optical and infrared ranges.

The first T-50 prototype made itsmaiden flight in January 2010. By mid-June the aircraft had made 16 flights.The second prototype is expected to jointhe test program this year while two moretest airframes will be ready in 2010. “Thetask for the first two aircraft is to testaerodynamics, stability and controllabil-ity while the 3rd and 4th aircraft will befitted with onboard equipment requiredby the customer,” explains Sukhoi headMikhail Pogosyan, adding that the air-craft subsystems like an AESA radar arebeing developed simultaneously.

The X-band AESA radar for the T-50is being developed by the TikhomorovNIIP design bureau. Its antenna, firstunveiled at the Moscow MAKS exhibi-tion in August 2009, has 1,500 transmit-receive modules. Besides the X-bandradar, NIIP is also working on an L-band active phased array that will be in-stalled on the T-50’s leading-edge flaps.

The first T-50 prototype is powered bya pair of NPO Saturn 117M engines, animproved modification of the 117S pow-erplant installed on Sukhoi Su-35 fight-ers. The 117M has a new FADEC sys-tem and a thrust reportedly increased

from 14.5 to 15 tons. This engine, initial-ly planned as a temporary solution, willnow power the first production aircraft aswell. “We think that this engine will meetthe requirements at the initial stage of theaircraft’s operation”, says Pogosyan,adding that development of a second-stage engine may be launched in 2011.

The testing of the T-50’s onboardequipment and weapons trials will startafter 2012, and will involve aircraft fromthe pre-production batch. “The size ofthe pre-production batch will dependon the progress with prototype testingwhile these aircraft should speed up thetrials,” says Popovkin. The weapons tri-als will be conducted by the Air Force atthe 929th flight-test center in Akhtubin-sk. “We would like to complete the test-ing by 2015 in order to start deliveries ofproduction aircraft from 2016,” thedeputy defense minister adds.

The Russian government in June dis-closed the cost of the PAK FA program.When inspecting the T-50 prototype inZhukovsky, Prime Minister VladimirPutin said that 30 billion rubles (about$970 million) had already been spenton the aircraft’s development, and thatanother 30 billion was required to finishthe program. But the PAK FA programis a top defense priority for the Russianauthorities, and receives 100% fundingannually.

The T-50 is expected to stay in ser-vice for 30-35 years. Sukhoi currentlyfocuses on the single-seat version, butlong-term plans include the develop-ment of a two-seat PAK FA version,dubbed T-50UB, that will also serve asa basis for the Indian Air Force’sprospective FGFA fighter. Russia andIndia signed an intergovernmentalagreement on 2007 to jointly developthis aircraft, but a relevant contract be-tween India’s HAL corporation andSukhoi is still being discussed.

Preparing for serviceThe Russian Air Force wants to speed up the testing of the fifth-generation fighter

The Russian government has already spentabout $1 billion on the PAK FA program andplans to allocate another $1 billion

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DEFENSE

MiG-35 in radar testingMaxim Pyadushkin

This spring Russian jet makerMiG Corp. conducted thefinal stage of flight trials onits MiG-35 Gen 4++ fight-

er. The MiG-35 was developed fromthe MiG-29 Fulcrum model under therequirements of the Indian Air Forcetender for 126 Medium Multi-RoleCombat Aircraft (MMRCA), unoffi-cially estimated at more than $10 bil-lion. During the trials the aircraft forthe first time demonstrated integrationbetween the weapons and its Zhuk-AEAESA radar, and now stands a goodchance to win the tender in which itcompetes with the Lockheed Martin F-16, Boeing F/A-18, Dassault Rafale,Eurofighter Typhoon and Saab Gripen.

The last trials in April involved twoMiG-35 prototypes – a single-seat ver-sion with the side number 961, and atwo-seat version, side number 967. Thelatter was modified to carry the Zhuk-AE multi-function X-band radar withan active electronically-scanned array(AESA) developed by Moscow-basedPhazotron-NIIR Corporation.

A Russian industry source toldRussia & CIS Observer that at this stagethe aircraft had confirmed their flightparameters with various loads and forthe first time demonstrated operationof the AESA radar and its integrationwith the weapons. The two-seat num-ber 967 made 18 sorties, piloted by bothRussian and Indian pilots.

The Zhuk-AE reportedly demon-strated its abilities to locate targets atmaximum ranges, detect group targetsand track evading targets, as well as itsground-mapping capabilities. The test-ing involved a radar prototype with asmaller antenna array than thatplanned for the series-production ver-sion. The prototype has a diameter of500 mm, and incorporates only 680transmit-receive modules instead of the

final version’s 1,064. The source saidthat the radar demonstrated goodground-mapping capabilities and con-firmed its target detection ranges. Ear-lier Phazotron-NIIR designers report-ed that during the initial testing at aMiG-35 demonstrator, the radar pro-

totype demonstrated a detection rangeof 130 km while the larger-antenna se-rial radar is expected to have a range of160-170 km.

But the major part of the current testsinvolved weapons trials. The MiG-35for the first time engaged a Dan targetdrone with a Vympel R-77 (RVV-AE)medium-range air-to-air missile, thesource revealed. He explained that theZhuk-AE fed the missile with the targetcoordinates, calculated its launch zoneand provided radio correction duringthe missile’s flight to the target.Another weapon tested was the KAB-500 500-kg TV-guided bomb. Theradar’s integration with other air-launched munitions planned for MiG-35 was demonstrated to the Indian sideduring the bench tests.

The April trials brought up the rear ofthe tender evaluation process. India isexpected to select the winner alreadythis year. The major advantage of the

Russian proposal is the commitment totransfer MiG-35 production technolo-gy, including the AESA radar, to the In-dian side. According to the tender re-quirements, the winner will deliver tothe Indian Air Force 18 assembledfighters, while all other aircraft will be

gradually manufactured at HindustanAeronautics Ltd. (HAL) facilities.

But Russia has another chance tosell Zhuk-AE to India as it participatesin parallel bidding for delivery ofAESA radar for HAL’s Light CombatAircraft (LCA) program. The radarmodification for the LCA will have anantenna size between those of the cur-rent Zhuk-AE prototype and its serialversion. The MiG-35’s success mayalso facilitate other applications of theZhuk-AE, Russia’s first and so far on-ly operational AESA radar, for theRussian Air Force. According to theindustry source, the Zhuk AESA hasbeen included in the government pro-curement plans as a modernization re-quirement for the Air Force MiG-29sand is also being considered by theNavy, which may install it on theMiG-29K ship-based fighters recentlypurchased for the Admiral Kuznetsovaircraft carrier.

In April the two-seat MiG-35 prototype for the firsttime demonstrated integration between the weaponsand Zhuk-AE AESA radar

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Maxim Pyadushkin

Russian Military TransportAviation (MTA), a part ofthe country’s air force,completed reorganization

in 2009 and is now preparing to renew itsfleet. MTA Commander Lt-Gen ViktorKachalkin announced in May that hisservice expected to get new transportaircraft from 2012 to 2020. However, themilitary’s plans strongly depend of thecapabilities of the Russian aircraft in-dustry and its possible cooperation withthe Ukrainian aircraft makers.

Following the general reorganizationof the Russian Armed Forces, MTAshifted to a more simple organizationalstructure. The earlier structure, inherit-ed from the Soviet era, included air divi-sions, air regiments and air squadrons.Now there are air bases, which directlycommand air squadrons. Overall, thereare four air bases: two 1st class bases inTver and Orenburg, and two 2nd classbases in Pskov and Taganrog. There isalso the 610th training center in Ivano-vo. As part of the reorganization effort,

military transport aviation now includesA-50 AWACS units, as well as An-2 lightturboprops formerly operated by avia-tion of the Airborne Troops.

According to Lt-Gen Kachalkin,whereas in the previous years the totalannual flying time of his aircraftamounted to 12,000 hours, this year hisservice managed to reach that result inthe first six month alone. He expectsthat an average MTA pilot’s flight expe-rience will reach 96-100 hours in 2010.

Now the service relies on a fleet ofAntonov An-124 strategic transports,Ilyushin Il-76MD heavy transport air-craft and Antonov An-26, An-22 andAn-12 turboprops. None of these mod-els is produced in Russia at the moment,but the military plans to include ordersfor new such aircraft in the state defenseprocurement program for 2011-2020,which is expected to be approved by theRussian government at the end of 2010.

Challenge for the industryLt-Gen Kachalkin explained that thefleet renewal will start in 2012-13 withthe introduction of new Ilyushin Il-112

light transports. These turboprops, witha payload of up to 6 tons and a range ofup to 5,000 km, should replace MTA’sageing An-26s and An-24s. Later onthe military expects to modernize theIl-76MD aircraft through the installa-tion of new avionics and more powerfulPS-90A-76 turbofan engines. Plans al-so call for the procurement of new Il-476 aircraft, an improved modificationof the Il-76 which will be assembled inRussia. In 2009, the Russian govern-ment took a decision to resume pro-duction of the An-124 transport, withdeliveries to MTA to start in 2014.

The MTA commander also men-tioned the Antonov An-70 transportaircraft developed jointly by Russia andUkraine. He said that this model, witha payload of 47 tons, could find itsniche in the MTA inventory betweenthe Il-76MD and the An-12. Lt-GenKachalkin expects his service to get thefirst one or two such aircraft in 2014-15, to be deployed at the Tver air base.He declined to give the exact overallnumber of new transport aircraft to beprocured, saying only that the fleet ren-

Airlift renewalThe Russian Air Force is planning for new transport aircraft

The Russian Air Force plans to modernize thecurrent fleet of Ilyushin Il-76 heavy transport as

well as to purchase new Il-476 versionLe

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ovation program would be completedby 2020.

However, the military’s plans strong-ly depends on the ability of the Russianaviation industry, now merged underthe umbrella of United Aircraft Corpo-ration (UAC), to successfully run somany new programs within such limit-ed timeframes. UAC representativescomment that the Air Force hasn’t yetplaced any firm orders. The DefenseMinistry is still in the process of defin-ing its vision of the defense procure-ment program for 2011-20, which is tobe funded from the state budget.

The Il-112 will be produced at theVoronezh VASO plant and, accordingto a UAC source, the first prototypeshould roll out in 2011. Next year willalso see the start of Il-476 assembly atthe Ulyanovsk-based Aviastar facility.Compared to the Il-76, which used tobe produced at the TAPO plant inUzbekistan, the new aircraft will havePS-90A-76 engines, a two-membercrew and a new, more swept wing. Avi-astar also plans to restart its only re-maining assembly line for the An-124strategic transport, but to do so it has toland a military order for at least 20 air-craft, the UAC source says. This pro-gram would also require closer cooper-ation with Ukraine’s Antonov concern,the An-124 designer.

Cooperation with UkraineCooperation with Antonov should alsogive an additional boost to the An-70program. The development of this air-craft was launched in the 1980s. Themodel will feature short-runway perfor-mance due to its four D-27 engines withSV-27 counter-rotating propfans. Thesepropellers produce additional air flowthat increases the wing lift, provideshigher cruising speeds and reduces fuelconsumption compared to similarlysized turboprops. The An-70 will be ableto operate from unpaved runways of upto 700 m length with 20-ton payloads.

The maiden flight of the first proto-type took place in 1994. The programhas been developed in cooperation be-tween Russia and Ukraine, but in 2006the Russian Air Force that was expected

to be the major customer for the newaircraft suddenly announced its with-drawal from the program. Bilateral co-operation on the An-70 officially re-sumed only in 2009. Dmytro Kiva, Pres-ident and General Designer of Antonov,

explained to Russia & CIS Observer thatthe Russian side has resumed financialsupport for the program, but that anoth-er $150 million is needed to completethe An-70 development.

An-70 prototype is currently in the fi-nal phase of government evaluation tri-als in Ukraine, to be completed in 2012.The aircraft has made 624 test flights,logging 707 flight hours. The remainingtests will include hot-and-high trialsand formation flights, for which the An-70 prototype will team up with the firsttwo production aircraft currently underconstruction in Kiev under the order ofthe Ukrainian Defense Ministry, Kivasaid. He also confirmed that the firstproduction aircraft would feature im-proved avionics, including new hard-ware components and processors, cath-ode ray tubes replaced with LCD dis-plays, and FADEC engine controls.

Earlier, the assembly of An-70 air-craft for the Russian Air Force was ex-pected to start at the Omsk-based Poletfacility. But now this facility is out ofthe UAC scope. After merging with the

Khrunichev Space Center, it has nowshifted to manufacturing launch vehi-cles and space satellites.

Integration prospects for the twocountries’ aircraft industries were dis-cussed during Russian President Dmit-

ry Medvedev’s visit to Kiev in April.According to preliminary plans, UACwas expected to get 50% plus 1 share ofAntonov concern, which includes theAntonov Сompany, production plant inKharkiv and the Kiev-based 410th air-craft repair plant. In exchange,Antonov was to receive a stake in UACwhose size could be defined after theUkrainian company completes duediligence. Now it looks like the possiblemerger is put off for more distant futureas it will require reincorporation of thestate-owned Antonov into a joint-stockcompany. Both sides discuss now thecreation of a joint venture that will runjoint programs like, for example, thoseof An-124 and An-70. In June UAC’sBoard of Directors approved the cre-ation of such Russian-Ukrainian JV.According to Vasily Prutkosvky, UACVice-President for Corporate Gover-nance and Development, it will be re-sponsible for procurement of materialsand assembly parts for jointly producedaircraft as well as for their sales andpost-sale support.

Russia and Ukraine discuss the creation ofa joint venture that will run joint programs,including those of An-124 and An-70.

Procurement of Antonov An-70 dependson level of cooperation between the aircraft

industries of Russia and Ukraine

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AIR TRANSPORT

Boris Rybak

Last year and the first half ofthe year 2010 have been theperiod of general frustrationfor airline business on nearly

all fronts. The globalized economy,promoted by bankers and stock brokersas a new era for business, has so farfailed to deliver on its promises. Thedeep recession that followed has result-ed in unprecedented losses for the air-line business all over the world. Thenatural disaster in Iceland, aggravatedby the narrow minded actions of offi-cials, has completed the picture of a de-pressed industry. Airlines have been andstill are struggling to survive in both theEU and Russia. Not all of them werelucky enough to survive. Some are ask-ing, “who will be next to fail under suchconditions?”

Contact between Russian aviationauthorities and the European Commis-sion on aviation issues have stoppedcompletely – marking almost threeyears of deadlock. Russian authoritieshave initiated a number of investiga-tions pertaining to airline ownershipand beneficiaries of several Europeannations, indirectly threatening themwith potential problems in obtainingpermission to fly to and over Russiawithin the framework of existing bi-lat-eral Air Service Agreements (ASA).The mostly useless bi-lateral talks heldin 2009 and early 2010 between theRussian Ministry of Transport and re-spective authorities of many EU na-tions did not add anything positive tothis gloomy picture.

However, in May long awaited butnevertheless unexpected changes inRussian policy towards the West and

the EU in particular, began to takeshape. Successful and very productivesummits between the Russian Presidentand leaders of Northern Europe havetaken place in rapid succession. Newprospects for Russia joining the WorldTrade Organization in the near futurehave started to fuel almost forgotten ex-pectations. And finally rumors regard-ing the possibility of a “New BasicAgreement” between Russia and theEuropean Union to be signed in thenear future have made these expecta-tions even more realistic. This principalturn in relations between Russia andthe European Union give us an excel-lent opportunity to re-visit all major is-sues of Russia-EU civil aviation rela-tions and try to forecast future develop-ments.

Russia-EU air transportdialogue at a glanceContact between Russian transport au-thorities and European Commission

DG TREN were resumed rather unex-pectedly in May 2010, providing aglimpse of hope for those positivelyminded and new sources of frustrationfor pessimists. Little is publicly knownas both sides have not released any in-formation. It is known, however, thatboth sides have agreed to continue a di-alogue and have planned another meet-ing for this autumn.

While re-establishing official con-tacts is, by all means, a good thing,there are some fundamental deficien-cies in the relations between the Rus-sian and European air transport com-munities. A lot has been said about dif-ferent positions on different issues. It isnot a problem to have different views.Today misunderstanding is a majorproblem between Russia and EuropeanUnion, covering virtually all aspects ofthe airline industry.

What did the Russians actuallymean by making an enquiry into theAustrian and Swiss ownership of these

Glimmer of hope or samegame, next season?Air transport relations between Russia and European Union

Today misunderstanding is a major problem in airtransport relations between Russia and European Union

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airlines? What was the actual purposeof attempts to direct Lufthansa Cargoto Krasnoyarsk airport, a base mostlyunsuitable for modern cargo opera-tions? Why are Russian officials notanswering letters, e-mails and phonecalls when asked for more explana-tions?

What was the real purpose of the ex-tensive SAFA activities regardingRussian airlines in EU airports be-tween 2006 and 2008? Why are Euro-pean authorities so reluctant to allowRussian capital or other forms of par-ticipation in European airlines? Whydoes the Association of European Air-lines never talk to the Russians? InRussia, we do not hear the voice ofEuropean airlines. What are theirstrategies and goals in this market?What are their financial and opera-tional results in Russia? Answers forthese and many other questions havenever materialized.

To start improving understandingand mutual trust we need to widen the

dialogue beyond the box restricted bypolitical and governmental circles. Inthese times when policy is beingformed from scratch, contributionsfrom a broader spectrum of interestgroups, like Parliament members,economists, financiers, and partici-pants across the industry as a wholewould be invaluable. We cannot affordto let outsiders – political dealmakersin Europe and Russia who know littleor nothing of the airline industry toforge game rules for our industry fordecades ahead.

Trans-Siberianroute paymentsThis issue has become a stumblingblock that has frozen Russia-EU civilaviation relations for three years.There is a common understanding inRussia that European airlines haveasked the Commission to removeTrans-Siberian Route (TSR) over-flight royalties. But why the Commis-sion has made this issue not only a

number one priority, but de facto amandatory precondition for all futurecontacts and negotiations remains amystery. In this regard, the Commis-sion has made itself a sort of hostageof a single issue.

Historically it was European andJapanese airlines that asked the thenSoviet government to provide themSiberian overflight permission forcash. Nobody is forcing Europeanairlines today to make code-sharingagreements or to purchase additionalfrequencies from Aeroflot. There area number of other trunk routes fromthe EU to Asia and the Pacific Rimoutside of Russia airspace. What’s allthe fuss about? Some say this systemis against EU and international avia-tion laws, yet Russia has never signedany relevant treaties. Some say thatthat it is unfair to give money toAeroflot, that it is a breach of therules of competition. It is highlydoubtful that Aeroflot represents anyserious competition to European air-


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lines and I do not think that anybodyin Europe will ever experience anycompetitive advantage if Aeroflotstops receiving overfly money at somepoint. Given that the Russian govern-ment wants to help this state-ownedcompany, it could subsidize Aeroflotat any time it chooses – WTO mem-bership or not.

It would be very naive to think that apolitical, as opposed to an industry so-lution for the elimination of TSR pay-ments will make any difference from apure monetary standpoint for Euro-pean airlines. Today it is absolutelyclear that there will be no cost savingsfor those flying TSR. The TSR feemost probably will be replaced with ei-ther new environmental charges ofsome kind (thank you, EuropeanUnion, for the hint) or a navaid fee in-crease or both. A political solutioncould have possibly been achieved inthe late Soviet Union, but these timesare long time gone. It is strange thatpolicy makers in Europe can not seethat simple fact.

One possible “airline industry” so-lution would be in the sphere of mak-ing Russian air transport more andmore de-regulated and more in line

with contemporary international stan-dards, allowing for integration into theglobal airline business. Giving this as astarting point, the issue of TSR over-flight payments would dissolve quicklyby itself. The Commission should notinsist on unilateral cancellation ofwhat some view as unfair costs, buthelp Russia to modernize its air trans-port infrastructure and integrate it in-to the Common Aviation Area, bring-ing maximum pragmatic advantage forall parties. An approach like this wouldmost certainly be appreciated by theRussian government.

In my own opinion, a practical solu-tion to the TSR payments issue doesnot rest in political trade-offs; it mustbe a result of modernization and dereg-ulation of Russian air transport.

New realities of airlineconsolidation and cooperationLarge-scale changes are taking place inRussian and European civil aviation –consolidation among EU and Russiancarriers has caused fundamentally newlegal and regulatory problems as well aschanges in civil aviation regulations inRussia. I have already mentioned in-quiries made by Russian authorities re-

garding airline ownership and nationalbeneficiaries for several European air-lines. The question is: who cares? Verysoon there will be no “national“, “flag-carrying” airlines in many EU memberstates, e.g. in capital of Europe Bel-gium, and center of Central Europe,Austria, where two major airlines areforeign-owned. Not to mention adozen of smaller countries.

What will the Russians do if theycannot think beyond the narrow logic?Will they demand the termination of airservice to these countries as they are nolonger subject to bi-lateral Air ServiceAgreements? How will Europeans reactto such pointless rhetoric?

The expansion of Russian airlines’includes cooperation with global al-liances and the conclusion of previ-ously unthinkable code-sharingagreements. Bi-lateral Air ServiceAgreements will obtain new meaningin this context. New forms of airlinebusiness cooperation are on the hori-zon both within the framework ofglobal alliances as well as outside ofthese boundaries. Pursuing its owncourse, the Russian air transport in-dustry is moving towards de-regula-tion and liberalization regarding in-

New code-sharing agreements between Aeroflotand Air France-KLM now include intra-European

sectors for the Russian carrier and Russiandomestic sectors for its European partner

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ternational air service, despite the of-ten harsh framework of bi-lateralagreements.

A truly ground breaking code-shar-ing agreement was signed betweenAeroflot and Air France-KLM inParis this April in the presence of theRussian and French Ministers ofTransport. New SU/AF code-sharingagreements now include intra-Euro-pean sectors for the Russian carrierand Russian domestic sectors for itsEuropean partner.

One might think that this is an ex-emption to the rule, representing adeeper commercial and marketing in-tegration of Sky Team members fa-vored by their respective governments.This is not, however, a unique case.Just a month later a new set of similarcode-sharing agreements followed,this time with CSA, providingAeroflot with more commercial rightswithin Europe.

In fact this means that Russia’slargest airline has not only been accept-

ed into the EU Common AviationArea, but is already taking serious ad-vantage of the fact. Other Russian andEuropean airlines, for example BMIand Transaero, Air Berlin and S7, arealso making intensively use of opportu-nities offered by code-sharing withtheir partners.

Even more impressive examples ofnew types of Russian-forged bi-lateralASAs can be found in another part ofthe world. The recent agreement be-tween Russia and Hong Kong (which isnot an independent state by the way,but still subject to bi-lateral agreement)provides Russian airlines with possibil-ity to have fifth freedom flights viaHong Kong to other Asian destina-tions. Singapore Airlines is already en-joying fifth freedom privileges for itsSingapore-Moscow-Houston service.

Given this context, it is not quiteclear why Russian aviation authoritiesare not supporting the idea of Commu-nity Designation and / or a horizontalOpen Sky agreement with the Euro-

pean Union. All of these remarkableevents are a very tangible indicationthat mutually beneficial dialogue isboth feasible and practical providedboth sides want it.

Tourist and Leisure TravelTourism between Russia and Europeancountries has been a major drivingforce behind the constant growth ofRussia-EU air traffic over the last twen-ty years. Air traffic between Russia andEU member states tripled in the 90’sand had been growing at average rate of15-17% annually thereafter until 2008.

Two out of the four largest Russianinternational airlines are dedicatedleisure travel charter operators - Ore-nair and VIM Avia. The two largestRussian international airlines, Aeroflotand Transaero, have a significant partof their European business from thetourist industry.

The most liberalized (from regulato-ry point of view) travel market for airtransport, the Russia-Germany mar-


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ket, has clearly demonstrated all theadvantages of easy access to the market.For many years Germany has been theNo.1 international market for Russianairlines. Other EU countries are far be-hind, including major tourist destina-tions like France, UK, Italy and Spain.

In 2008 Lufthansa has carried430,000 passengers between St Peters-burg and Germany. For comparison:France has 75 million visitors per yearand only half a million of those tourists

are carried by Russian airlines, whichmeans that Air France has another halfmillion passengers. We can see a verysimilar artificially depressed situationwith traffic to Spain and Italy with 50+million and 40 million internationalvisitors per year. It is hardly surprisingthat Sky Team members and their Rus-sian partner, Aeroflot, dominate allthese markets.

It is quite obvious that easier accessfor other Russian carriers to these mar-kets will result in a significant growth oftourist traffic to these countries and toRussia.

Russia’s Tourist Industry Union iscurrently leading a lobbying campaigntargeted at relaxing the visa regime fortravelers from developed countries, firstand foremost for residents of the Euro-pean Union. The simplification proce-dures for obtaining short term visas forthose traveling to Saint Petersburg im-plemented during a trial last year im-

mediately resulted in a boom in thenumber of travelers to this major Rus-sian tourist attraction. Potentially car-dinal changes in the tourist marketloom as a consequence of moving for-ward with negotiations on relaxing visaprocedures.

What to do?Fundamental changes in relations be-tween Europe and Russia demand animmediate response from market par-

ticipants. There are two basic scenarios.The first is to simply do nothing. “Letpoliticians do their job. We will wait andjump on this bandwagon when all theground work is done.” How often wehear this, or if not actually hear, meetthis very common, hassle-free, “energysaving” approach.

Another possibility is to provide sol-id, valuable industry input in this con-versation before the political processbecomes hardened and poorly in-formed laws and agreements cripplethe progress that has been made so far.The bottom line is that today politi-cians and governmental officials fromboth sides do not have any clear strat-egy for the future development of airtransport. European policy on theRussian air transport market looksvery sketchy and, from Russian stand-point, one sided. Russian policy forthe European air transport market isso vaguely formulated that its provi-

sions are considered by many to becompletely unacceptable from theperspective of EU legislation.

In these circumstances, given the air-line industry intends to take a pro-ac-tive approach and contributes to thepolitical and legislative conversations atthe initial stages of what is essentially anew era of relations between Russia andEU, many very useful and positivethings could be done.

Here is just one example. In the po-litical arena, Russia and theEU are moving forward todeveloping the Partnershipfor Modernization Program,originally proposed by theEuropean Commission earli-er this year and well receivedby the Russian government.The airline industry can andshould include itself in thispotentially important pro-gram with feasible, under-standable and pragmaticprograms with clear goalsand results. The success ofindustry inspired programswithin this framework willbuild-up mutual credibilityand trust for further coopera-

tion in the political and commercialspheres.

Other similar opportunities should beresearched and explored to the full ad-vantage of our industry. Endless talkabout crazy Russians who are alwaysagainst all nice EU initiatives (simplybecause of their bad temper and thetwisted workings of their mysterioussouls) and the constant Russian accu-sations about European with their hid-den intentions to squeeze unilateralbenefits our of Russia and discriminateagainst friendly Russian businesses willlead to nowhere. It’s for the industry tobegin to have a more significant voicein the conversation about the state ofaffairs in the international airline in-dustry and dispel the myth of gloomwith a clear thinking and straight talkabout the potential for growth and co-operation in this new era for the benefitof the airline business and better rela-tions between neighbor nations.

In 2008 Lufthansa has carried 430,000 passengersbetween St Petersburg and Germany

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Polina Zvereva

Ever since Russia’s air trans-portation market got started,most of its airlines have triedto do everything at once: of-

fering scheduled flights, internationaland domestic charters, and so on. Thislack of specialization among Russiancarriers was due to the extremely com-plicated market conditions they faced,their aim to make money across all seg-ments, and (in some cases) manage-ment miscalculations. It’s only now thatmajor players learn to position theirbusiness to some extent. At the sametime, the Russian market has gained thekind of airlines that operate in the Euro-pean and American markets.

Charters onlyThe tourist charter market has been at-tractive to most carriers ever since the1990s; the features of this businessmodel enable an airline to make profitseven if a significant proportion of seatsremain empty. In structuring their op-erations, however, the major airlinesstill placed greater emphasis on sched-uled network flights, since charterflights alone are not enough to gain sig-nificant market share. Charter-onlyairlines have existed in Europe foryears; most of them are owned by or af-filiated with tour operators. This trendis only just starting to develop in theRussian market.

The most notable project to date hasbeen Orenair airlines; although thiscan’t be described as a 100% charterairline, since it still operates somescheduled domestic flights (primarilybetween Orenburg and Moscow). In2009, when most airlines saw passengernumbers fall, this state-controlled car-rier managed to boost its traffic radical-ly by adding various versions of Boeing

737s to its fleet and actively moving in-to the charter segment. Orenair in-creased its number of passengers flownby 40% in 2009, to 1.6 million. Most ofthis growth came from internationalcharter flights; the carrier flew nearly1.4 million passengers on these routes,

making it Russia’s fourth-largest inter-national airline – after Aeroflot,Transaero, and Rossiya.

The rapid growth of Orenair is at-tributed to its cooperation with a touroperator, Pegas Touristik. It reportedlyfinanced the lease deal for aircraft nowregistered as in use by Orenair. Thereare now plans to transfer Orenair toAeroflot’s management; the airline’snew development strategy is to be an-nounced this autumn. But Aeroflotchief Vitaly Savelyev has already statedthat some of the carriers to be trans-ferred to his company’s management,as per its agreement with the RussianTechnologies state corporation, will bespecialized – including one charter air-line. Naturally, the industry has as-sumed that Orenair is the only candi-date for that role.

While Orenair still has its domesticroutes, along with international char-ters, other Russian airlines – such asNordwind Airlines and IFly – operatecharter flights to holiday destinationsonly. Nordwind is associated with theaforementioned tour operator, Pegas

Touristik; IFly is linked to TEZ Tour.According to the Russian Federal AirTransportation Agency, Nordwind flew860,000 passengers in 2009, mostly oninternational routes. IFly, launched rel-atively recently, hasn’t released anyperformance figures as yet.

As well as these two companies, ana-lysts also associate the NordStar carrier(the brand used by Taimyr Airlines)with the tourist market. This airlinestarted leasing Boeing 737NGs lastyear, announcing that it would usethese aircraft for scheduled domesticflights (from Norilsk to Krasnoyarsk,Moscow, and Sochi). But the airlinehas turned out to be operating charterflights as well. Taimyr is controlled byNorilsk Nickel, whose chief executiveVladimir Strzhalkovsky is a formerhead of the Federal Tourism Agency

Choosing a business modelRussia has specialized airlines now

Orenair is expected to remain a charter specialist evenafter being transferred to Aeroflot’s management.

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and a co-founder of the Neva tour op-erator.

While tour operators are getting in-volved in launching charter carriers,airlines are actively moving into thetourism market. For example, S7 Air-lines is promoting a company called S7Tour, while Transaero has TransaeroTour. So the process of airlines and touroperators moving into contiguous mar-kets is taking place in parallel.

Low-fare experimentsFor years, low-cost airlines were only atantalizing prospect for Russian passen-gers. Now Russia has two airlines thatposition themselves as discount carriers.The first to be launched was Sky Ex-press, which started scheduled flights inJanuary 2007. It flew just over 1 millionpassengers in 2009, making it one ofRussia’s top twenty airlines; it rankedseventh on domestic passenger traffic,with domestic market share of over 3%.This airline’s revenues grew 27% in2009 relative to 2008, reaching over 3.5billion rubles (about $110 million). Thecarrier expects to fly 1.45 million pas-sengers in 2010. As at March 2010, SkyExpress was operating scheduled flightsfrom Moscow to 10 other cities; its fleetconsisted of nine Boeing 737-300 and737-500 aircraft. All the same, Sky Ex-press hasn’t managed to stay a low-costcarrier only. In an effort to improve itseconomic performance, the airline hasstarted operating in the charter market.

Russia’s second low-fare airline,Avianova, was launched in mid-2009.

This carrier has turned out to be moreactive than Sky Express. Avianova start-ed out with Moscow-Sochi flights, butit now has 18 routes. It has flownaround 120,000 passengers since itsstart-up, and its target for 2010 is to in-crease traffic more than tenfold: to 1.3-1.5 million passengers. The airline hasonly five 180-seat A320s; by the end ofthe year it plans to expand this fleet toat least seven aircraft, flying 20 routes.In less than a year of operation,Avianova has managed to add newroutes not only from Moscow, but alsofrom St Petersburg: it has been flyingout of Pulkovo airport to Arkhangelsk,Krasnodar, and Sochi.

In Moscow, Avianova has switchedairports already: in March, it movedfrom Vnukovo to Sheremetyevo’s Ter-minal B (formerly known as Shereme-tyevo-1). “Terminal 1 is exactly whatmeets the classic low-cost company’sneeds,” says Vladimir Gorbunov, chiefexecutive of Avianova. “We are the on-ly airline using that terminal, and wehave a whole ramp there. We plan to in-troduce a system that doesn’t requirebuses to deliver passengers to the air-craft for boarding – we will use gatesthey can reach by walking.”

Positioning itself as a discount carri-er, Avianova set Russia’s lowest air fare:250 rubles ($8, excluding taxes and air-port fees). The lowest fare until thenhad been announced by Sky Express,which offered tickets for 500 rubles.The subsequent competition in thelow-cost segment forced Sky Express to

cut prices further: by early March, itwas offering fares of 320 rubles.

Even before Sky Express entered themarket, some argued that discount air-lines could never be viable in Russia forvarious reasons: the low populationdensity of consumers who want to flyand can afford to do so, the large dis-tances between cities, and the almostcomplete lack of competition betweenproviders of services for airlines.Moscow-St Petersburg has been calledthe only profitable route for discountcarriers. This route – a flight of about80 minutes – links Russia’s two largestcities, with the most developed eco-nomic, political, and cultural life; theroute is comparable to the conditionsin which European low-cost airlinesoperate. But other destinations in Rus-sia don’t fit this pattern.

In Europe, Ryanair’s average flightdistance is around 1,000 km and theaverage flight time is around 1.2 hours.In the United States, Southwest’s aver-age distance is 1,300 km and its averagetime is around 1.5 hours. In Russia,low-cost airlines will inevitably have towork sectors of 2.0-2.5 hours; that’sthe only way to reach cities with at leasta million residents and attract poten-tial passengers who presently spenddays traveling by rail. But increasedflight duration obviously reduces fre-quencies.

Direct competition between manyairports, located close to each other, isanother factor that helps keep air travelcosts down in Europe. But alternativesecondary airports are practicallynonexistent in Russia, and neither isthere much scope for cost-cutting else-where. Taken together, all these factorsmake it clear that Russian airlineswon’t be able to directly copy the Euro-pean business model for low-costflights. Avianova CEO Andrew Pynecounters these arguments by pointingout that he encountered similar prob-lems when developing low-cost opera-tions in Asia, before relocating to Rus-sia. But despite the difficulties, the dis-count flights market in Asia is working— so Pyne is convinced that it can belaunched in Russia as well.

Avianova quickly expanded its routenetwork to 18 domestic destinations.

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BUSINESS AVIATION

Maxim Pyadushkin

The Russian business aviationmarket is beginning to revivefollowing a sharp decreasein 2009, caused by the eco-

nomic crisis. Local operators and pro-fessional institutions are reportinggrowing demand for business flights inthe first months of this year, while do-mestic business airports continue toimprove and expand their services.

According to Russia’s United Busi-ness Aviation Association, the frequen-cy of business aviation operations in2009 decreased by 35% compared tothe previous year. Previously, the Rus-sian bizav market demonstrated an un-precedented growth – in 2006-08 thenumber of business flights increased by29%, according to the Aerotransground services and operational sup-port provider. But last year’s slumpbrought the Russian bizav segmentback to the levels of 2006. The lowestdemand for business flights on the Rus-sian market was reported in the firstmonth of 2009, while the end of theyear witnessed some stabilization andeven modest recovery.

Uncertain improvementsThe situation began to improve quick-ly in early 2010. Aerotrans estimates,based on the statistics of unscheduledflights, that demand for bizav servicesstarted to grow rapidly in January

through May. Monthly frequenciesexceeded the 2007 level in February,while in May the indicator was betterthan in the most successful year of2008. “It was the highest result since2006,” comments an Aerotrans repre-sentative.

The total number of unscheduledflights performed by Russian operatorsin the first five months of 2010 exceed-ed the results for the same period in

2008 by 5%, despite the European airtraffic restrictions caused by the Ice-landic volcanic eruption and a redistri-bution of charter operations initiatedby the Russian authorities in early2010. The number of flights preformedby foreign companies within the sameperiod remained lower than in 2008.

Russian business aviation operatorsagree with Aerotrans’ conclusions. “Inthe first three month [of 2010] thenumber of bookings for bizav flightswas growing, and the prices were grow-ing too,” says Igor Bublovsky, generaldirector of the Moscow Sky VIP char-ter specialist. He hopes that the sector

has passed the lowest point of thedownturn, but it’s not yet clear whetherthe growth will be sustainable. LeonidKoshelev, head of the Russian charteroperator Jet 2000, shares this view, say-ing that the volume of bizav services hasreturned to pre-crisis levels.

In fact, the current growth is beingfuelled by growing demand for largeaircraft, which are traditionally pre-ferred by the Russian customers. “We

don’t observe any other positivetrends,” says Koshelev. Bublovsky con-curs, saying that large aircraft are inhigh demand at the moment whilethose customers who preferred midsizejets before the crisis have now switchedto lighter aircraft.

Another trend reported by the opera-tors is that demand for charter flights toleisure destinations is recovering fasterthan that for business trips. Leisureflights account for 70-75% of totalcharters, which is quite different fromWestern markets, says Bublovsky.“[Russian] customers don’t denythemselves tourist trips,” he notes.

Turn for the betterRecovery of the Russian bizav market gives hope to local operators and service providers

The total number of unscheduled flightsperformed by Russian operators in the first fivemonths of 2010 exceeded the results for thesame period in 2008 by 5%


BUSINESS AVIATION

Competing for clientsThe slowdown of the Russian businessaviation sector in 2009 did not halt thedevelopment of ground infrastructure.The need for better landside and airsidefacilities becomes more evident nowthat the market has started to recover.

Vnukovo traditionally remains thecountry’s largest business aviation air-port, handling nearly 70% of all bizavtraffic in Russia. St Petersburg’s Pulko-

vo is second largest; other centers forbusiness flights include Moscow’s Do-modedovo and Sheremetyevo, as wellas some airports in southern Russia,like Krasnodar, Rostov-on-Don andSochi.

Although Sheremetyevo is not asstrong in the bizav segment as Vnuko-vo and Domodedovo, it is developingrelevant infrastructure. Avia Group, asister company of the Sheremetyevomanagement firm, is about to launchthe construction of a new business avi-ation terminal at the airport. The fa-cility, dubbed Terminal A, is expectedto open to customers within the next12 months.

The new business terminal will havean area of about 2,700 square metersand handling capacity of 75,000 pas-sengers a year. There will be duty-freeshops, on-site customs and immigra-tion clearance, and a va-riety of service and per-sonnel facilities such asspacious arrival and de-parture halls, VIP depar-ture lounges and meetingrooms, conference facili-

ties, a bar with a view on the airside,pilot recreation and briefing areas,and a secure parking lot for 50 cars.Avia Group expects the terminal topromote business aviation at Shere-metyevo to a whole new level, increas-ing relevant handling capacity andproviding the highest internationalstandards of service.

Avia Group is taking other steps toincrease Sheremetyevo’s attractiveness

for bizav operators and clients. Lastyear the company completed a newhangar facility exclusively for businessaviation. Owned and operated by AviaGroup, it can accommodate two AirbusA319s or Boeing BBJs, or several small-er business jets. The company has alsoinstalled an airframe de-icing serviceusing equipment from Danish manu-facturer Vestergaard.

With the opening of the new termi-nal next year in addition to the two ex-isting hangars, the Sheremetyevo Busi-ness Aviation Center will be fullyequipped to provide one-stop-shopservices to customers including pas-senger handling, flight planning andadministration, ramp handling, into-plane fuelling, line maintenance,catering and security.

The other Moscow airports also ex-pand the range of their services to the

business aviation segment. Vnukovo’sJet Aviation facility has recently be-come an independent Russian legalentity and can now perform mainte-nance services under an EASA 145approval. “EASA 145 gives us greaterflexibility to tailor our portfolio ofaircraft services to better match ourcustomer fleet profile and require-ments,” says managing director IanLudlow.

This facility, which was set up in2007 as a branch of Jet Aviation Dus-seldorf, provides round-the-clocktechnical maintenance services, in-cluding line maintenance, defect rec-tification and aircraft-on-ground sup-port to operators of Bombardier, Em-braer, Gulfstream and Hawker busi-ness jets. Being a part of the Jet Avia-tion global network, the Vnukovo-based company supports AOG re-quirements in Russia. It is also an au-thorized warranty line service for theBombardier Challenger, Global Ex-press and Gulfstream families.

At Domodedovo, Avcom-D BusinessAviation Center this spring has com-pleted a 48-month inspection on aChallenger 300 in compliance with theFAA and Bombardier requirements.The company also conducted F and Gchecks on two HS 125-700 business jetsoperated by the Russian companyAerolimousine. Recently, Avcom-Dhas performed the first lading gear over-hauls at its HS 125-700/800 mainte-nance facility.

Avcom-D was established in 1995 toservice business aviation operations atDomodedovo airport. Now the com-

pany can accommodateup to 55 business air-craft on its ramp and inhangars. Domodedo-vo’s two parallel run-ways allow for round-the-clock bizav move-ments with no slot limi-tat ions . Avcom-D’smaintenance center of-fers line service byFAA-licensed techni-cians on all types ofbusiness aircraft.

Vnukovo traditionally remains the country’slargest business aviation airport, handling nearly70% of all bizav traffic in Russia

The new business terminal tobe built by Avia Grup inSheremetyevo will have anarea of about 2,700 squaremeters and handling capacityof 75,000 passengers a year A

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2010

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SPACE BUSINESS

Igor Afanasyev and Dmitry Vorontsov

The fate of the Sea LaunchLCC international consor-tium, once a world-leadingcommercial space launch

provider, remains unclear. The com-pany filed for bankruptcy protection ayear ago, followed by reorganizationand a change of hands. To add to theuncertainty, Sea Launch faces the taskof returning to profitability throughcost-cutting measures and an increasein the annual launch capacity.

Sea Launch LLC was set up in 1995as part of an international commer-cial project to create and operate a

floating launch platform for Zenit-3SL rockets. Its founders were Boe-ing, Russia’s Energia Rocket andSpace Corporation, Ukraine’s Yuzh-noye design office and Yuzhmash fac-tory, as well as the Norwegian ship-builder Kvaerner (now known as AkerSolutions). Three-stage Zenit-3SLlaunch vehicles would lift off from aself-propelled platform near Christ-mas Island in the equatorial Pacific.The first such launch, carrying the

DemoSat spacecraft, took place inMarch 1999. The latest one to dateorbited the Sicral 1B satellite in April2009. A total of 30 launches havebeen performed by Sea Launch. Ofthese, one was a partial success andtwo failed.

In June 2009, Sea Launch LLCsuddenly filed for bankruptcy underChapter 11 of the US BankruptcyCode. It turned out that the impres-sive launch statistics had been mask-ing serious financial problems. By2009 the company debt had reached,by different estimates, $1 billion to$1.4 billion, which considerably ex-ceeded the value of its assets ($100-

500 million). There were several rea-sons for that. To begin with, the in-frastructure required sizeable invest-ments: after each launch the two SeaLaunch vessels had to return to homeport to take a new rocket on board. Asa result, Sea Launch could not per-form more than five launches a year.The operational costs were growing,and the launch plans proved overopti-mistic about actual market demand.The situation worsened after the 31

January 2007 disaster, when a Zenit-3SL’s first-stage engine failed, causingthe launch vehicle to crash back downonto the platform and explode. Re-pairs to the launch platform tookmonths. This downtime moved somecustomers to walk out in search of al-ternative launch providers. Conse-quently, Sea Launch performed justone launch in 2009, against five theyear before.

The Sea Launch clientele of satel-lite operators was shaken by its with-drawal form the market. On the otherhand, almost all the clients were con-vinced that Sea Launch would soon beback. The company had opted for arelatively painless bankruptcy proce-dure, one that did not call for liquida-tion of assets but demanded a clear re-organization plan. Under Chapter 11,the debtor is temporarily dischargedfrom its debts. Creditor’s claims fromcustomers amounted to slightly over$250 million.

In an attempt to rescue at least partof its assets, Boeing in July 2009 settledwith the Sea Launch creditors for theamount of $448 million, and beganseeking compensations from the Rus-sian and Ukrainian partners. In a sepa-rate development, an obscure businessnamed Space Launch Services (SLS)extended a $25 million reorganizationloan to Sea Launch in December 2009– March 2010.

However, by early summer 2010 thesituation radically changed. Under arestructuring plan submitted to theDelaware court which oversees the SeaLaunch bankruptcy case, on 12 May,85% of the reorganized Sea Launch isto go to Energia’s subsidiary EnergiaOverseas Limited (EOL), in exchangefor a $140 million investment in theconsortium’s registered stock. The re-maining 15% of the Sea Launch sharesis to be distributed among outstandingcreditors.

Murky future for Sea Launch

Since 1999 Sea Launch has performed 30 launches from self-propelledplatform near Christmas Island in the equatorial Pacific


SPACE BUSINESS

The Zheleznogorsk-based ISS-Reshetnev company, Russia’s

leading satellite manufacturer, offersthe common satellite platforms Ex-press-1000H and Express-2000, whichcan be used for the creation of next-generation telecommunications satel-lites. Express-1000H is intended formedium-class satellites weighing up to1,700 kg, and Express-2000 is designedfor heavy-class spacecraft weighingover 3.5 tons.

During its 50-year history ISS-Reshetnev has built more than 1,200spacecraft, including 200 telecommuni-cations satellites. Now the companybuilds modular telecommunicationsspacecraft. A modern satellite is madeup of two modules — a service module(the satellite platform) and a payloadmodule. The key advantages of modulardesign include reduced assembly times,lower production costs, higher qualityand reliability of the spacecraft. In thisprogram ISS-Reshetnev cooperates

with a number of leading foreign com-panies including Thales Alenia Space,Saft, Sodern, Aeroflex, and Actel.

The Express-1000H platform has al-ready been approved for the AMOS-5

and Telkom-3 satellites under con-struction for Israel’s Space-Communi-cation Ltd. and PT Telekomunikasi In-donesia. This platform is also intendedfor the Yamal-300K telecommunica-tions spacecraft ordered by Russia’sGazprom Space Systems company.

The heavy-class Express-2000 plat-form will be used for the Express-AM5and Express-AM6 satellites manufac-tured for the Russian national operatorRSCC. Both spacecraft are to join theRussian comsat constellation in 2012.Each satellite will carry over 70transponders in the C-, Ka-, Ku- и L-bands. With the payload power of noless than 14kW, Express-AM5 and Ex-press-AM6 are expected to become themost powerful Russian telecommuni-cations satellites. Express-2000 will al-so be used for another communicationsand TV broadcasting satellite — Yamal-401, ordered by Gazprom Space Sys-tems and expected to be orbited in2012-13.

ISS-Reshetnev offers next-generation comsats

The advanced Express-1000medium-class platform

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In early May 2010, on an under-standing with Sea Launch, EOL talkedSLS into selling its right to finance theconsortium’s restructuring effort. Themove will cost EOL $30 million. Ofthis sum, $19 million will be spent onrepaying the loan to SLS. The trans-action was tentatively approved by theDelaware court. The agreement be-tween Sea Launch and EOL will makeit possible for Sea Launch to seekloans worth $200 million – the sum itneeds to emerge from its debt. Someexperts believe that the whole deal wasfinanced by Russian state-controlledbanks. As for the change of SeaLaunch ownership, observers suggestit became possible after Boeing andAker lost interest in the concern.Some experts offer the explanationthat the entire bankruptcy procedurewas orchestrated by Boeing, whichused it as a pretext to get rid of an un-profitable business.

Sea Launch president and generalmanager Kjell Karlsen says that theapproval of the restructuring plan willenable his company to emerge fromChapter 11 by September. Sea Launchplans to resume operations in 2011,performing up to five commerciallaunches a year. Energia president Vi-taly Lopota says this is the minimumnecessary figure for loss-free opera-tions. In fact, such an annual launchrate does not look impressive com-pared with the leading internationalspace launch providers – Arianespacewith the Ariane-5 and InternationalLaunch Services (ILS), which ope-rates Russian Proton launch vehicles.At present they each have a backlog ofabout 20 firm orders, against SeaLaunch’s three, which include twoSES Astra satellites and oneINTELSAT spacecraft.

In order to provide a competitive ad-vantage, Sea Launch will probably have

to cut prices. To do so it will have to re-duce the cost of the single most expen-sive component of the Zenit booster –the RD-171M engine, developed andproduced by Energomash. This, how-ever, will be hard to do. According toEnergomash sources, the engine’s fac-tory price is about $13.5 million apiece,and even that is not profitable enough.

Plans were recently made public forthe creation of a Russian Space andRocket Corporation. It is supposed tobe built around Energia as the leadmanufacturer, and will include the Sa-mara-based TsSKB-Progress and En-ergomash. The Energomash manage-ment suspects that the main goal of thereform is to cut the price of the RD-171M, even to the detriment of thecompany’s other projects. Whether ornot Energia will manage to cut a dealwith Energomash is a big question. Un-til it is answered, the future of SeaLaunch will remain murky.

Russia/CIS Observer, 29-30

Documents

Transcript of Russia/CIS Observer, 29-30