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Airline Management, Airline Mergers & Acquisitions, Bombardier, Regional Aircraft, Regional Airlines

SUMMARY: Russia’s civil aerospace industry and life after the annexation of Crimea and a new Cold War. Now EU/US have applied 4 rounds of economic sanctions, now its time to add Russia’s Aerospace industry to those sanctions, VLM Airlines plan to bring the Sukhoi SuperJet 100 to Western Europe, appropriate at this time ? and what is the future for Russia’s 6th placed civil aviation industry with a weak Ruble and oil below $50 a barrel and with less than 1% of the global commercial aircraft market (in $ terms) ? will the Irkut MC-21 (to be re-designated as Yak-242 in 2016) even fly now ? Russia now scrambling to have Russians flying on Russian airliners, Bombardier can’t dump the Q400 program fast enough on the Chinese, while ATR can’t build the ATR-72-600 fast enough with 280 in backlog and 160 firm orders in 2014 alone ! While Turkey looks to stretch the AN-158 to 120 seats.

The Russian economy is taking a beating these days, the 4 rounds of EU/US sanctions have hurt a bit but the big hurt comes from falling oil prices (below $US 54 a barrel today) which accounts for 75% of Russia’s exports and the Ruble (RUB) is now down 50% to only 58.5 RUB to one $US.

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ssj-1emb-190

The Sukhoi SuperJet 100 (SSJ-100) (LEFT photo) is the cornerstone of Russia’s civil aircraft industry today, certified by EASA on February 3rd, 2012 its about to go to the first Western European airline. At $36.2 million list price the aircraft has a two class seating of 87 (12+75) and competes with the Embraer E-190 (RIGHT photo)which is listed at $42 milllion and has a 2 class seating for 94.

The Russians are working hard to make this aircraft successful, now they have found VLM Airlines of Belgium to introduce the aircraft in Western Europe. Suspicious MBO (management buy-out) of the small ACMI airline raises suspicion on who financed the MBO, as Russians are desperate now to have a western customer.

To make it happen it has targetted Embraer’s E-Jets by offering low lease deals which include turnkey maintenance support and lower DOC (direct operating costs), which by the way I doubt very much. The claimed 10% lower cash operating costs versus the E190 can only be true with very low lease rates, that will not be possible if Russia’s banks cannot raise money internationally. This is the program that will make or break Russia’s commercial aviation industry going forward the next 10 years, the SSJ-100 needs to be a success for the MC-21 to be a success as well. 

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This comes on the back of several mistakes President Putin has made, most importantly the annexation of Crimea from Ukraine on nationalistic grounds, to protect ‘Russians’ nationals, which makes this the 4th annexation by Russia in the past 15 years of foreign territory  (ie. South Ossetia and Abkazia from Georgia and Transdmiestria from Moldova) and is now eyeing eastern Ukraine and Budjak (Bessarabia) in Ukraine as well, while failing to to reform the Russian economy, leaving it still too dependent on the energy industry which like much of the country’s wealth has been carved up among Putin’s ‘friends’.

Interest rates are 17.5% in order to boost the Ruble but that has not worked as the Ruble (RUB) tumbled 23% in 3 months in the 4th quarter. With oil to stay below $70 a barrel for 2-3 years, and Russia needing $105 per Brent barrel to stay off recession at home, times will get hard for Russia and most oil dependent economies (ie. Alberta in Canada, Texas, North Dakota in the US, and many other countries like Iran, Venezuela, Nigeria). The more trouble Putin faces we in the west will see him playing the national card, which equates to more military aggression against NATO and more ‘games’ from Russia.

The Cold War is now on again, as Russia’s military has taken on an aggressive stand unseen in 20+ years by NATO, from buzzing NATO warships in the Black Sea to SU-27 runs at US RC-135’s, TU-95 Bear bombers conducting missile strike drills on the Canadian border to the same only 50 miles off the coast of California. With over 40 interceptions of Russian aircraft in 2014 by NATO aircraft, no wonder Poland is buying guided air to ground missiles, the Estonians are buying 250+ anti-tank missiles to more military spending my most NATO countries expected in 2015.

This crisis will eventually spill over to the Russian aerospace industry (6th in the world after US, EU, China, Brazil, Canada), as it is hoped that the next round of EU/US sanctions, the Russian aerospace industry is added to the list of sanctioned Russian companies, for United Aircraft Corporation (UAC) (MCX: UNAC on stock market in Moscow) is 80% owned by the Russian Government with many of the majority government owned Russian banks already under sanctions (VTB, Bank Moskvy, Rosselkhozbank), they are being denied access to international borrowing and this will greatly affect UAC’s ability to offer financing on the SSJ-100 and create problems for the development of the Irkut MC-21 and any other future aircraft program.

United  Aircraft Corporation (UAC) is the holding company for all the BIG aircraft manufacturers in Russia(military and civilian):

Beriev (Be-200 jet amphibian)

Ilyushin (IL-96-300/400 widebody jet airliner, IL-76 transport, IL-114 and IL-112 regional turboprops)

Irkut (new MS-21 narrowbody jetliner)

Sukhoi (Superjet 100 plus SU-27SK, Su-30MK, SU-32, SU-35 fighter jets)

Mikoyan (Mig-35, Mig-29K fighter jets)

Tupolev (TU-204/214 jet airliner plus TU-95MS and TU-160 bombers)

Yakovlev (Yak-130 jet trainer)

KNAAPO

TAPO

 As well, the future of Antonov products (Ukraine based) is unknown but surely the AN-124 transport and the AN-148/158 will be continue in limited production in Russia. Not like the West really needs anything from Russia’s aerospace industry, in fact has any consumer out there bought anything with “MADE in RUSSIA” on it ? NO for sure, they do not make anything the West wants. They have titanium and that is something aerospace desperately needs today in modern aircraft.

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ssj-armaviassj-sky aviationssj-muskovia

While the Sukhoi SSJ-100 has only seen 84 deliveries, it already has had several airlines fail. The launch customer (god only knows why) was Armenia’s Armavia (LEFT photo), took one, could not accept the 2nd and eventually folded. Sky Aviation of Indonesia (CENTER photo) went bust as quickly as it started and Muskovia of Russia went bust this past August.

The only foreign customer to date is Interjet in Mexico which is flying the aircraft into the USA on scheduled services. The aircraft is sold, marketed and supported by Superjet International which is 51% owned by Alenia Aermacchi (Italy) (part of Finmeccanica) and 49% by Sukhoi Holdings .(Russia). The new CEO of Finmeccanica Mr. Mauro Moretti is dissatisfied with Superjet International and wants changes to the joint venture.

Read:  http://www.flightglobal.com/blogs/flightblogger/2012/08/superjet_honeymoon_over_with_l/

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I find it outrageous that at this point in time, Belgium’s VLM Airlines would order two plus ten otions of the Sukhoi Superjet 100 regional airline. The Russians are desperate to have the aircraft in Western Europe, and the management buyout of the airline from Germany’s Intro Aviation which bought CityJet earlier this year is suspicious.

The price apparently was too good to pass up, “we felt we could not refuse” said Peter Onchen, MD at Intro Aviation and suspicion is that Russian money was behind Mr. Arthur White’s MBO (management buyout), he ran VLM for several years as its general Manager, and today VLM runs 12 x Fokker F50’s on ACMI contracts to various airlines.

I estimate ACMI revenue no more than EUR 20 million per year, so at a rough 12% EBITDA margin, the company’s business could be worth at best EUR 10 million at best (4.17 multiple), then for the aircraft (12 x F50’s) maybe another EUR 12 million (if all paid off), so we pay a multiple on earnings and dollar for dollar (market value) on tangible assets, so in total, EUR 22 million again at best for the whole thing.

I guess that is a good deal, finance a MBO for EUR 22 million and possibly lease up to 14 SSJ100’s worth $US 500 million ? remember they have very tough conditions on the financial guarantees they have from Russian banks like delivering 45 units in 2015, 56 in 2016 and 60 in 2017, plus have a stretched version by 2019 and the backlog cannot go below 80 ! yes desperation time for Sukhoi.

Presently VLM flies to Geneva from Antwerp twice daily with the old F50 and with its planned SSJ100 service this year, one can assume Geneva will be one of its few early destinations, and with Belgian JetAir Fly planning 15 weekly flights from Antwerp this April to Alicante, Barcelona, Berlin, Malaga, Milan and Palma, competition will be tough for the new VLM, and the SSJ100 will be under the spot light as reports of poor reliability trickle in though denied by United Aircraft denies all such reports, we shall see.

If sanctions do not stop such a deal than hopefully the good people of the EU will themselves boycott the airline and the aircraft, as at a time when EU farmers and factory workers are hurting under retaliatory Russian sanctions, it is wrong to support the Russian aerospace industry. The people of the EU can send a strong message to Russia by NOT flying on Sukhoi SSJ100LR aircraft, it is the right thing to do at a grave and serious time in Russia/West relations, such situations can escalate very quickly into a shooting war.

For VLM it is a foolish move, for after the annexation of Crimea and the shooting down of MH17 a B777 on July 17, 2014 and the subsequent 4 rounds of EU sanctions against Russia, to still pursue the Sukhoi under such extreme political circumstances smells of Russian money, and maybe an investigation as to who really controls VLM is warranted at this time.

The $US 36.2 million 87 dual class seat Sukhoi SSJ100LR  is a good aircraft, but it is no equal to the Embraer 190 ($US 42 million, 94 seats in 2 class) with which it competes with. Only Russian financing could make it more attractive and I do not buy the argument the aircraft won hands downs versus competing products. Ilyushin Finance Company will provide the first 4 aircraft on 12 year operating leases and then 10 options of the same.

By the way, the King of Thailand has just ordered 3 x SSJ-100’s as VIP aircraft, a market Sukhoi expects to do well in is the VIP segment, they figure 5 a year over 20 years, to this end Comlux has ordered 2 with 2 options to develop a VIP version of the aircraft, Comlux is the first approved completion center for the SSJ-100, I wish them much luck, as they will need it. I would comment more on the Thai deal, but it is illegal in Thailand to criticize the King, and I would like to go back to Thailand again one day.

Ironically, and maybe just a co-incidence but on November 2th, 2014 Denim Air of the Netherlands, another ACMI operator, was bought out by management in a management buyout (MBO) from parent Penta Holdings N.V. and now under CEO/MD Ronald Jansen, the operator of 1 x Fokker F50, 2 x Fokker F-100’s and a single ERJ-145 is looking to add scheduled services as well with new aircraft ?

Who is financing these ACMI airline MBO’s ? will we see Sukhoi SSJ 100’s at Denim ? if so one has to believe the Russians have gone downstream and ‘buying’ SSJ100 customers by funding MBO’s of regional airlines/ACMI operators. Two MBO’s in a short time period of Western Europe’s regional airlines, and yes one has to be suspicious as Sukhoi is desperate for a western customer other than Interjet of Mexico. I do not think I am too far off in my suspicions.

I hope that the current sanctions on Russian banks to tap international financial markets derails this deal, the Russians have nowhere to go for their financing right now and its $US 28 billion plan ($US 20.5 billion from the state and balance from ‘private’ investors) to finance Russian aerospace to 2025 announced in May, 2014 is surely a pipe dream now.

Sukhoi Civil Aircraft Co. (SCAC) lost $248 million in 2013 and $102 million in the first half of 2014 and has been helped out by Kremlin banks in 2014 as the SSJ-100 is Russia’s most critical civil aviation program. Sberbank, VEB Leasing, now has $2 billion in complex arrangements of direct and indirect loan gurantees and capital increases. The manufacturer is tied to delivering 36 aircraft in 2014, 45 in 2015, 56 in 2016, 60 in 2017 and 2018 and the order backlog cannot drop below 80 aircraft in 2015 and 85 aircraft between 2016-2019. Lastly, there is a condition for a 115 seat stretch dubbed the SSJ-SV which should fly by Mid-2017 and be certified by 2019.

These are very ambitious targets for a manufacturer that has 1 western client (Interjet-Mexico) and whose launch customer was Armavia of Armenia, which had no money for the 2nd unit and the 1st unit was repossessed after in went bust ! so important to have a good reputable launch customer, right Bombardier ? With international lending to Russia’s banks cut off, the SSJ-100 will not be able to offer the generous lease terms it has been planning, which is a good thing for Embraer, Bombardier and Mitsubishi.

Now, looking at the above money flowing into the Sukhoi Superjet 100 you can understand why I am suspicious of the recent MBO’s (management buy outs) in Western Europe of very small regionals, and why the EU has to put the Sukhoi Superjet 100 on the sanctions list along with the Russian Aerospace industry, the program is a pet project of President Putin, it cannot have success in Europe while we in the West fear the new Cold War and a possible shooting war with Russia.

These are serious times, I lived through the Russian annexation of Czechoslovakia in 1968, Eastern Europe knows the Russians and they do not trust them, from Estonia in the north to Bulgaria in the south, they know the terror of Russian occupation and control and President Putin is a Soviet era KGB leader, well connected to organized crime, the state is heading for what it was as the USSR.

The last century was a disaster for Eastern Europe under Russian control, the world will never have peace with ex-Soviets in power in Russia, and we are seeing it, 4 territories slowly occupied and they are eyeing more, will it ever stop ?

Let’s take a look at the Russian aerospace industry today, and where it is heading given the deteriorating economic situation and political situation presently taking place, leaving Russia in a very tight spot.

It looks like the Russian economy will shrink by 4% in 2015 while gold and forex reserves have fallen to their lowest levels since 2009 and Standard & Poor is soon to rate Russia’s rating to junk due to the rapid deteriorating situation in monetary flexibility in the country, while low oil prices (< $70/barrel) look like they will be around till mid 2017 at least, too bad for Russia for sure.

I think a good look at Russia’s aerospace industry should start with what does not work, and that is the civil aircraft manufacturing end, which has built only 245 aircraft between 1995 and 2013 ! or 12.9 aircraft per year for the past 19 years, in fact production was below 10 aircraft per year in 11 years between 1996 to 2008 (13 years), just shows how bad the Russian commercial aircraft industry has been doing. Much of that was because they have too many programs at low production rates, instead of concentrating on 1 or 2 programs.

This is now changing, as Russia wants to focus on the SSJ-100 now and the Irkut MC-21 in the next 5 years.

Between 2005 and 2013 the following aircraft were built in Russia:

AN-140 = 9 (more on this program further down)

AN-148 = 21

IL-96 = 12

TU-204/214 = 40

SSJ-100 = 44 (84 by end of 2014)

That will go up as Sukhoi is planning to build 40 SSJ-100’s in 2014 and 50 per year from 2015 onwards-we shall see, but that looks awfully difficult if they cannot get their landing gear from Messier-Dowty (Canada), engines from PowerJet (Snecma-Safran 50% and NPO Saturn 50%) or Avionics from Honeywell (USA).

The funding that VEB (Vnesheconombank) has devised to help Sukhoi with export sales will surely be very difficult now as sanctions on Russian banks will make it very difficult for anyone to do finance with them, in fact it may be even criminal if in violation of the new EU sanctions. All Kremlin controlled banks are in trouble right now, and it won’t be getting any easier for sometime, and this will hurt the aircraft programs, especially the programs geared for export (SSJ-100, MC-21, Be-200).

After Aeroflot’s first low cost airline was grounded by EU sanctions for flying B737-800’s to Crimea, Russia has turned to using TU-204’s for the service, and Russia is turning to domestic aircraft, sadly they do not have much to choose from, most of the Russian equipment is ‘junk’ like the IL-96 which can carry 250-350 passengers like the A330, but costs $50m versus $240m for the A330-300, and yet only 29 have been built, few fly today and then for Cubana and alike.

With the Russian planned Bombardier Q400 assembly line now off the table with Rostec, as Bombardier desperate to ‘off load’ the Q400 which even with heavy discounting is NOT selling, is no being offered to China. The days of turboprop airliners at Bombardier are numbered, and yet they vacated the market too fast.

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WJ Q400x

The Bombardier Q400 deal to build the aircraft in Russia with Rostec is off, Bombardier had high hopes for the aircraft in Russia, but Russia’s annexation of Crimea and subsequent support for Russian rebels in Eastern Ukraine have seen 4 rounds of sanctions on Russia by the EU/US, and the deal could not be done.

Bombardier is desperate to unload the Q400, it is not selling even with heavy discounts it cannot compete with the ATR-72-600, which has 150+ sales this year, backlog of 320 aircraft ($US 7+ billion) and has shown that Bombradier pulled out of the turboprop market way too soon, the market for DHC-8-300’s is surely still there.

Now ATR is planning on 10 aircraft per month production and it has the market all to itself. Once again, Bombardier has miscalculated on its “forecasts”, and the CSeries order book is still weak and full of “unrealistic” orders (ie. Republic, Iraqi Airways, etc.) and NO North American airline-ouch !

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ATR today is alone in building 48-78 seat turboprops, and has a record backlog of 320 aircraft ($US +7 billion in value) and in 2014 will deliver 84 units with 150+ sales in 2014, how sad it is that Bombardier abandoned that market with the DHC-8-100/200/300. Again poor decision making and a serious lack of understanding the market dynamics, as the CSeries is still a sales disaster with over 1/3 of orders highly questionable, and it cannot even announce the launch customer for the type.

So in place of the Bombardier Q400 the Russians are looking to re-launch the IL-114, a Bae ATP look alike that has 64 seats and is built in far away Uzbekistan at the Tashkent Aviation Production, the star up is to cost RUB 12 billion ($205 million) and will take 5 years, and the aircraft is and was a poor performing aircraft. The status of the AN-140 a 48 seat regional turboprop is unknown after the annexation of Crimea.

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an-140il114an-148

The above 3 aircraft, are the only really viable Russian built regional airliners. The AN-40 (LEFT photo) is a 52 passenger, 21.5 ton MTOW turboprop (Klimov TV3-117) with a maximum speed of 310 kts, only 38 built so far (in 12 years), and license production in Iran as HEASA IrAN-140, so far 6 have crashed.

The IL-114 (MIDDLE photo) is being revised after the Q400 program was halted, it is sad 64 seat 23.5 ton MTOW turboprop (Klimov TV7-117) with a six bladed prop, maximum speed is 270 kts, only 20 built in Uzbekistan (?) now being converted to MAP (maritime patrol aircraft) and it is no replacement for the Q400, looks like an BAe ATP no ?

Lastly the AN-148/158 regional jet (RIGHT photo), a twin engine look alike of the BAe 146-100/200, the 148 seats 68 in 2 class seating with a range of 3,500 km while the stretched 158 can seat 86 in 2 class seating.

Only 34 built since 2009 and 3 with Air Koryo of North Korea and 6 with Cubana, the same old problem for Russia, few takers outside of their border, usually poor socialist countries with no money who do not need FAA certification, IF Russia’s commercial aviation is to grow and prosper it needs to build aircraft too FAA certification standards, these programs with 20-38 aircraft are just not viable, and Russia gains nothing from them.

SIDE NOTE: The AN-158 may get new life soon as Turkish Aerospace Industries (TAI) is talking to Ukraine’s Antonov (which is in a bad situation right now thanks to Russia’s invasion and annexation of Crimea), about taking the 99 passenger AN-158 and stretching it to 120 seats and obviously it has to be powered by a Western engine to be successful, more on this in coming weeks.

Il-112-1

Another Russian regional turboprop program in the works is the IL-112V, a military light transport (ABOVE photo), looks like ATR-42 with MTWO of 20 tons, payload 6.5 tons and max. cruise of 297 kts. Originally the Russian Air Force wanted 70 units, then in 2011 it was abandoned and now given the green light for 2 prototypes. The Russians were going to use the AN-140T with a rear loading ramp and bought 7 of them but in September, 2014 decided it did not want to negotiate with the Ukrainians, and the IL-112V is now a full go. It is a replacement for the AN-26 and a competitor to the AN-140 turboprop. Russia is in a hurry to have locally built aircraft as soon as possible, as the rift between the West and Russia gets wider by the month. 

mc-21

The Irkut MC-21 (to known as Yak-242 in 2016) will be offered in 3 variants , the -200 will be 136 seats in 2 class seating comparable to B737-Max7, the -300 will have 152 seats in 2 class seating comparable to B737-Max8 and the -400 will offer 178 seats in 2 class seating comparable to B737-Max9. It needs western suppliers to make it happen, sanctions will delay or kill the program, as 60% content by value will be from the West, the Russians for one have no engine for it, they want the PW1400G engine but it may not happen, and their planned Aviadvigatel PD-14 powerplant is years away and it needs western technology to become reality, but it needs to purchase advanced technology tools and equipment from the west for the planned $1.5 billion engine program. At this point the West should NOT assist the Russian aerospace industry at all, we are once again in a Cold War that could become a shooting war, so why help them compete with Airbus, Boeing, Embraer and Bombardier ? The 1st four MC-21’s are due to be handed off to 1st customer in 2018 and 1st flight is set for 1st half of 2016, now way will that happen ! someone is dreaming again and not being realistic, at best 2020 delivery – really ! if ever.

NOTE: According to Russia’s Deputy Prime Minister, Russia plans on selling 1,000 MC-21’s in the next 20 years, and apparently Lufthansa is interested ? the Russians have 175 orders all from Russia off course, and “by 2018 or 2019, we will begin squeezing out foreign produced aircraft from our domestic market”.

Apparently the MC-21 will be constructed by the end of 2015, and will be mostly Russian content in the aircraft, which will make the aircraft very price competitive due to the depreciated Ruble (RUB). We shall see, but they need an engine and export prospects are not good, they say India is interested, who in India ? they private airlines all have A320’s and B737-800’s and Air India the government airline, may not be around by 2019, why put yourself at a competitive disadvantage with a MC-21 ?

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The Russians have their Irkut MC-21 program, a direct competitor to the Boeing 737Max and Airbus A320neo, it is expected to cost $4.3 billion and Sberbank is funding $1 billion for 30-40% of the production costs. The problem now is that many commercial off the shelf components from the west will not be available to its engine manufacturers (ie. Aviadvigatel manufacturer of the alternative PD14 turbofan for MC-21)and airframe manufacturers to develop the aircraft. The international partners for the program, like Snecma, Alenia Aermacchi, P&W, Rockwell Collins, etc. are going to have to halt support for the MC-21 and SSJ-100 as they do have dual use technologies. International sanctions will slow the MC-21 program down, they need western partners to make it happen, from avionics, engines,

Even France is now holding back 2 locally built amphibious assault ships for the Russian navy, just what they needed in Crimea or to again invade Georgia or other small defenseless countries Russia likes to beat up on. France is facing a lot of bullying from Russia right now about the delivery of these 2 vessels, but when NATO is on high alert, it cannot send warships to Russia or anything that can be used by its military.

So as far as what Russia has to offer in terms of good commercial aircraft, it is the Sukhoi SSJ-100, AN-124 Ruslan cargo transport and the IL76 cargo transport, that is it. The MS-21 looks ok, but why buy one when it will not do anything better than the B737Max or A320neo, and you get the worries of Russian support, future resale values, marketability, poor reliability, etc. The Russians will buy them and have to compete with the western products with them, which will not be easy.

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TU-334

The TU-334 (ABOVE photo) is one of those many Russian aircraft projects that never made it, started in 1999 by 2009 it was still not certified, years behind schedule and 2 flying prototypes so United Aircraft Corporation (UAC) decided to focus on the SSJ-100 and AN148 regional jets instead.

The Tu-337 was a 102 seat regional jet based on a shortened TU-204 fuselage with Progress D436 engines, it was to replace the many TU-134’s and Yak-42’s still flying in Russia the the time, it apparently had 297 LOI’s but all Russian and those were switched to the SSJ-100 and AN148 quickly.

The Russian industry really struggled to get on board 1 aircraft program and stick with it, you had in this case the TU-334, SSJ-100 and AN-148 regional jets in development at the same time, and they could have saved time and money choosing only 1 in the first place, but that is how it worked in the old USSR days.

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My hat goes of the Ukraine, their aerospace industry is paying a big price, the AN-70 freighter is sadly finished, and the the AN-140 regional airliner and the AN-148/158 regional jet programs are in Russia for good. The Iranian HEASA IrAN-140 built AN-140’s have been a tragedy for Iran, only 11 built since 2001, 4 accidents and a regulatory ban on the aircraft. It struggles to find customers in Iran but the Iranian regime is determined to show the world it can build its own aircraft outside any sanctions imposed by the West, despite concerns about the aircraft’s safety and poor performance. Most recent crash was August 10, 2014, when a Sepahan Airlines lost an engine on takeoff from Tehran and the aircraft crashed and burned with 39 of 48 on board dead . The aircraft has already been limited to only 37 passengers from 48 seats due to poor performance (yet there were 48 on board ?), Antonov has offered the PW 127A engine to replace the Klimov TV-3-117, but Iran cannot buy the engines under the current sanctions. Anyway the aircraft has serious flaws, but Russia can use them, just don’t fly on one !

What works in Russia is Russian Helicopters ! with 2013 revenues of $US 3.9 billion, EBITDA of 20% both Mil and Kamov do well with military and civilian models, with 275 deliveries in 2013 for Russian helicopters (330 in total for all helicopters in Russia). The Mi-8/17, Ka-62, Mi-38, Ka-32A11BC are all top notch helicopters able to compete in their market segments. Russia has around 8% of the civilian helicopter market and plans to have a market share of 13% by 2025.

The HeliVert 50:50 joint venture between Russian Helicopters and AgustaWestland is about selling and manufacturing the AW139 and now even the AW189 helicopters for Russia and CIS (Commonwealth of Independent States) is big, with local oil giant Rosneft eyeing up to 160 locally built helicopters by 2025 from the JV. Rosneft needs these modern helicopters to support its offshore oil projects, with the 1st two AW189’s due mid 2015 from the Tomilino facility near Moscow. Hard to say what is going on with this JV with the sanctions, but it cannot be good for AgustaWestland.

The Russians are proud of the fact that the latest Mi-8AMTSh-V tactical transport helicopter has achieved full independence from imported equipment, it is all Russian built. I know the Russians feel they are ‘trapped’ with Western equipment, but this is the world today, globalization has integrated countries and industries, no one can really go it alone anymore, but Russia is bent on having Russians fly on Russian airplanes !

The Russians will try and give life to their paralyzed TU-204/214, IL-114 and AN-158 commercial aircraft programs but it will be no use, the aircraft have little interest in Russia and even less globally, though Turkish Aerospace Industries (TAI) is looking to work with Antonov and stretch the AN-158 to 120 seats, interesting idea that would help the Ukrainians and give the aircraft a 2nd life with Western engines and better sales/marketing hopefully.

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Russian helicopters-Mi-17Russian helicopters-KA-62Russian helicopters-Ka-32

This is the big future for Russia’s aviation industry, helicopters not aircraft. The Mi-17 (LEFT photo) is very popular around the world, with 3,500+ built and countries like India have ordered over 150 of the latest Mi-17V-5 model, a new $US 15 million Mi-171-A2 model is coming soon as Russia continues to improve the helicopter with time (24 seats, max. 152 kts, 812 ft3 cabin, 18,000 hour lifespan, 5,000 Kg lift capability).

The Ka-62 (CENTER photo) is by far the most ‘western’ oriented helicopter Russia has built, it has the appearance, systems and performance to be a serious competitor to the likes of Bell, Airbus Helicopters and Sikorsky and it is the 1st to appeal to the VIP market in the west. The Ka-32A11BC (RIGHT photo) has been around for awhile, it is the export version and is even in Canada with VIH (Vancouver Island Helicopters) doing logging work.

From looking at the above 3 photos it is obvious that the Russian helicopters need designers with a flair for style, the helicopters look “utilitarian”, which comes from the fact that most are workhorses and are built tough for rugged work in all kinds of conditions, but the western market will require more ‘style’ as the Ka-62 above shows, they can do it.

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With 303 Russian helicopters to be delivered in 2014 and a backlog of 808, the company has a promising future, a much brighter one than the commercial aircraft side, new models are needed like the Ka-32 and the new Mi-38. Ultimate success for the export market will depend on:

1. Delivering a quality product with performance and operating costs competitive or better than current competitors.

2. Ensure the helicopters have a high reliability and safety, the new systems need to be up to western standards, as commercial helicopters like aircraft, must be economically efficient to make money for their owners that requires low DOC’s, high reliability and safety record.

3. Having a global product support and training infrastructure in place for all helicopters, something the Russians have not yet done well enough to attract western interests and orders.

On the Russian military side, it is more problematic, Russia’s friends are generally poor countries, other than China and India it has no wealthy partners who can buy lots of military aircraft from them. While China is a good customer, Russia knows well that what it sells to China will be copied. Never mind the old copies of Mig-17’s (J-5’s), Mig-19’s (J-6) and Mig 21’s (J-7) I am talking about the Su-27 Flanker, Russia sold 200 kits to China in 1991 China only took 95 kits and declined the other 105, by 2007 China had its J-11 a Su-27 look alike, and the J15 which is a carrier based Flanker based on the Su-33 which China bought one off from Ukraine.

Now Russia wants to sell at least 48 Su-35’s to China, they only want 24, Russia is willing to accept the high risk of copying because it needs an order to cover the development cost of the aircraft as well as to preserve manufacturing skills, the cost of doing business with China ! more interesting right now for China are the engines(AL-41F1S) and its license production, China is way behind in engine technology and needs to close the gap, both military and civilian models.

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Be-200

SIDE NOTE:   The Beriev Be-200 multi role amphibian, is a very interesting aircraft built by Russia. It has been around since 1998 (1st flight) but only 9 built, 1 export to Azerbaijan in 2008, otherwise NO order from outside of Russia, yet it has a great deal of potential, like the ShinMaywa US-2 from Japan that just sold 10 to India.

The Be-200 has several versions, the 210 is the passenger version with up to 72 passenger seats, the 210 is a Maritime Patrol Version and then the 200 which can be a water bomber and was used in Greece in 2007. The aircraft cruises at 303 kts maximum is 378 kts, range is 2,100 km, there is a English cockpit version (200ES), a future Rolls Royce powered version (200RR) and climbs at 3,350 fpm.

The engines are located high and to the back to keep water spray to a minimum. I see big potential as a MPA but aslo in some parts of the world the airliner version could be interesting (ie. Maldives, Indonesia, Malaysia, Philippines, India, etc.) where there is good weather, long coastline and low level of infrastructure.

I have seen how the Maldives has the 3rd largest commercial seaplane fleet in the world (after Canada and the US) with 30+ DHC-6 Twin Otters, but with nothing bigger it has had to build satellite airports for the further our new resorts as the payload range of the DHC-6 is very limited on floats.

So now you take an ATR-42 to remote airfield and transfer to a boat or DHC-6 for your final leg. IF the Maldives can use so many float equipped DHC-6’s imagine the potential in much larger countries like Indonesia ! The Be-200 is unique enough to capture a reasonable 15-20 orders per year with good marketing/sales and the usual ‘westernization’ of the aircraft.

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Russia’s aerospace industry has been awakening the last few years, but we cannot allow Russia to become another USSR, those were bad days for everyone, and some punishment for not conforming to global norms has to be handed out, and the aerospace industry needs to be targeted, as it is Russia’s dream and therefore we need to squash that dream as they squash the dreams of hundreds of millions again with military aggression and threats of nuclear war.

We are living in tense times, Russia’s military aggression in the Crimea and elsewhere has brought on a new Cold War, oil prices are below $50 per barrel (today, Jan 6th), and that is sinking many oil dependent economies, like Russia, Iran, Venezuela, Nigeria, Angola and Mexico, the longer the low oil prices stay the more desperate the economic situation for some countries will be. We do not want conflict with Russia, but we also do not want to return to the days where the world fears the Russians either, the world deserves to live in peace.

Aviation is a very international business, it is what attracted me to it coming from a International Relations/Diplomacy background, politics is part of aviation from bilateral air agreements, traffic rights, air freedoms to certification, but I do not want to see countries held back by politics. The market for small regional aircraft is wide open today, and we are slowly seeing the emergence of new products in the 10 to 75 seat segments, from the Czech Republic, Indonesia, South Africa, Turkey to South Korea new aerospace companies will soon appear in those segments abandoned by the likes of Bombardier, Embraer, Saab, Fokker, etc.

Many regards, may 2015 be a great year for aviation ! the low oil prices will mean record profits at airlines !

Top 10 Russian airliners in use :

http://www.flightglobal.com/news/articles/top-10-russian-and-soviet-types-in-airline-service-408570/

 

 

 

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About Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow

I am a Canadian and EU national with an MBA and 33+ years experience in aviation business development with 20 years overseas and work in 25+ countries. A former investment/merchant banker (mergers and acquisitions to corporate turnarounds). airline and OEM senior executive and past owner of 6 successful aviation companies in 3 countries (executive jet charter/management companies, aircraft sales, aircraft broker, airline/aerospace consulting to aircraft insurance). I have a very diverse aviation background with 75+ aviation companies (45+ airlines of all sizes, OEM's, airports, lessors, MRO to service providers) as consultant, executive management, business analyst and business development adviser. Excellent success track record in International Business Development. Most work with airlines is with new start-ups and restructuring of troubled carriers. I sold new business jets, turboprops and helicopters for Cessna, Raytheon, Gulfstream to Eurocopter as an ASR as well as undertaking sales and marketing of commercial aircraft for Boeing, de Havilland, Dornier, Saab and Beechcraft. Brokered everything from LET-410's to B747's and from piston PA31 to G550 business jets. I look beyond the headlines of the aviation news and analyze what the meaning and consequences of the new information really means. There is a story behind each headline that few go beyond. Picked the name Aviation Doctor, as much of my work has been with troubled companies or those that want and need to grow profitably. I fix problems be in the business, and help with restructuring for a better tomorrow. You can reach me with comments or suggestions at: Tomas.Aviation@gmail.com and I comment a lot on Google+, my Facebook and LinkedIN.

Discussion

2 thoughts on “SUMMARY: Russia’s civil aerospace industry and life after the annexation of Crimea and a new Cold War. Now EU/US have applied 4 rounds of economic sanctions, now its time to add Russia’s Aerospace industry to those sanctions, VLM Airlines plan to bring the Sukhoi SuperJet 100 to Western Europe, appropriate at this time ? and what is the future for Russia’s 6th placed civil aviation industry with a weak Ruble and oil below $50 a barrel and with less than 1% of the global commercial aircraft market (in $ terms) ? will the Irkut MC-21 (to be re-designated as Yak-242 in 2016) even fly now ? Russia now scrambling to have Russians flying on Russian airliners, Bombardier can’t dump the Q400 program fast enough on the Chinese, while ATR can’t build the ATR-72-600 fast enough with 280 in backlog and 160 firm orders in 2014 alone ! While Turkey looks to stretch the AN-158 to 120 seats.

  1. What is the author of the above? An aviation consultant or a biased political commentator?

    Like

    Posted by Ross Kapernick (@Rkapo7) | December 26, 2015, 3:42 pm
    • An Aviation Consultant that also graduated from International Relations and Diplomacy and knows a great deal about what is happening around the world politically and is therefore very qualified to comment on the subject, why ? you disagree with it ? you are qualified to comment on international relations and history ?

      Like

      Posted by Aviation Doctor - Helping aviation companies to transform the present into a more profitable tomorrow | December 26, 2015, 6:23 pm
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