Alexey Fedorov, United Aircraft Corporation (UAC)
Release Date: 2008-09-08
United Aircraft Corporation appeared almost two years ago in order to bring a clear and homogeneous development strategy and to capitalize on the potential and know-how of the Russian aircraft industry…What lines have been drawn so far to maximize the industry’s potential?
In early 2008, the Board of Directors of JSC “UAC” approved and set forth the “Main provisions of the Development Strategy of the Open Joint Stock Corporation “United Aircraft Corporation” for a period up to 2025” (also referred to as “Strategy”) - basic concepts and lines for the efficient and dynamic development of the Corporation with the aim to achieve the status of one of the world’s largest aircraft industry centers with a diversified product portfolio. I consider this document to be fundamental among our most important decisions.
The Strategy, approved by the Russian government, envisages yearly production of hundreds - not several or a few dozens - of aircraft and defines manufacturing programs of aircraft that will remain on Russian industry’s agenda in the course of the next 10-15 years.
Another important achievement of UAC during the very first year of its existence was the completion of the model portfolio for the next decade. It was done taking into account the actual capabilities of Russian design bureaus and plants and, what is particularly important for the civil sector, this portfolio regarded the needs of airlines. A regular, stable and fruitful dialogue with the airlines was achieved for the first time in the history of Russian aviation.
It’s the civil production that is expected to bring the main sales increase till 2025. The planned sales volume of the Corporation for 2015 is estimated at $12-14 bln per year; by 2025 it is expected to reach about $20-25 bln per year.
And what are UAC investment priorities for 2008-2012?
The majority of JSC “UAC” enterprises began to receive modern and highly productive equipment within the framework of a common development program. Some of the essential current developments are active increase of production facilities and comprehensive preparation for mass-scale technical re-equipment that will continue this year. This will allow us to launch new products applying brand new technologies. We’re currently in a transition from custom-made to mass production of civil aircraft. In my view, these are the key results of UAC’s activity.
Concerning our financial indicators, they also show positive changes. For instance, in 2007 the aviation industry continued to be the leader of the military and industrial complex of Russia. Growth in terms of production was 16.6%, in the civil sector – 10.2% and in the military – 19.7%, mainly due to growth of export supplies of Su-30МK jets by Aviation Holding Company “Sukhoi" and “Irkut” Corporation.
Sales income throughout all the industry’s enterprises amounted to about 230 bln rubles, out of which UAC enterprises accounted for more than 120 bln rubles (approx. $5 bln). Export share of the sales income throughout the whole industry amounted to about 30%. UAC provided over 90% of exports of Russia’s aircraft construction industry.
In July 2008, UAC announced new top management assignments for Transport Aviation and the MS-21 strategic division. What is the impact and benefits that UAC is aiming to attain under such configuration? How will each strategic division operate within the United Aircraft holding?
- Indeed, new Vice Presidents have recently been appointed in the Corporation. These appointments speak not only of the importance of the corresponding directions within UAC but also of the fact that we’re actively developing them. A business unit for transport aviation has already been set up in UAC, headed by Viktor Livanov, General Director of JSC “Ilyushin Interstate Aircraft-building Company”. As the Vice President of JSC “UAC”, he will manage the Corporation’s activities in the sphere of transport aviation development and coordinate work between UAC and this business unit. He will also retain the position of member of the Management Board of JSC “UAC”.
In transport aviation, we defined the model range of prospective transport and cargo aircraft and plants where these will be produced. The plans for the category of superheavy cargo planes envisage upgrade and, possibly, restart of An-124 “Ruslan” aircraft production in Ulyanovsk. Mass production of the latest modification of the Il-76 family – Il-76MF with Russian engines PS-90А – is also planned to be launched in Ulyanovsk. Our aircraft constructors also work in partnership with our Indian colleagues developing the new multifunctional transport aircraft (MTA). In the sphere of light aircraft the Il-112 project is being launched.
As for civil aviation, the MS-21 is one of the most important and ambitious UAC projects in the medium term. The key project ideology is to attain the highest possible transparency and to put up for global tenders all the aircraft’s components. We hope that all the world leaders from the respective spheres, including Russian companies, will participate in these tenders. The fact that this is our only project for which a special position of Vice President was created, confirms the importance of MS-21 program for UAC. Oleg Demchenko, President of “IRKUT” Corporation, was appointed the project’s Vice President.
Besides, we also introduced the position of Vice President for Long Range Strategic Aviation in UAC: Igor Shevchuk, head of JSC “Tupolev” and member of the Management Board of UAC, was also appointed Vice President.
UAC has set, as a key objective, balancing its current portfolio between defense products and civil products in order to swap from a current 90/10 to a 50/50 in the years to come. How do you evaluate in general the current production rates and the sales volume, and what are the targets that UAC has set for each strategic division?
In Russian aviation the JSC “UAC” enterprises account for over 90% of the total volume of aircraft production in Russia and the CIS. Export – both of military equipment and civil aircraft – is a substantial share of the total income of the enterprises. In 2007 UAC’s enterprises supplied up to 70 “Su” and “MiG” aircraft models to the world markets, among them new, upgraded aircraft and equipment kits for production under license.
The objectives set by the UAC’s development strategy are as follows: to achieve 10% of the world market in civil aviation and over 50% of domestic market by 2025, as well as to retain the share of military aviation market (including military transport) at 12-15%. The balance between military and civil products should indeed reach 50/50.
The key success factor to achieve these objectives is a substantial increase of civil aircraft production. In 2008-2025 it should be increased by 10-12 times. That means a yearly production growth at more than 20% while the share of export supplies should exceed 50%.
What is the product portfolio of the Transport Aviation and where would be the competitive advantages of Russian-made aircraft in this segment? Would this allow Russian aircraft to enter new distribution markets?
Russia should also regain its former strength in transport aviation – both in sales and production. The model range of ramp transport aircraft produced, upgraded and developed by JSC “UAC” is based on implementation of a four-tier concept of basic models. We would like the Russian Federation to retain the competence in production of superheavy transport aircraft (such as An-124). In the category of heavy transport aircraft development of Il-76 family is planned envisaging production relocation to the territory of Russia. In the category of medium transport aircraft we plan the market entry of MTA international project with UAC as a system integrator. Whereas a new light military and transport aircraft is under development on the basis of Il-112 platform with the purpose of providing for the needs of Russian air force.
The field of Long Range Aviation has possibly the toughest competition with Boeing and Airbus products displaying the highest sales level. Taking this into account, how will this segment develop? What is the expected impact and contribution of new civil products such as SuperJet 100 on the image that Russian civil aviation sends to world markets?
Concerning SuperJet 100, as you already know, it’s not new from the viewpoint of applied technical solutions. However, this aircraft is to make a breakthrough in modern design and production technologies as well as high quality provided to our clients throughout the whole lifecycle including after sales support. Last year, with participation of our strategic partner, Alenia Aeronautica, we created a joint venture in Italy with Sukhoi Civil Aircraft Company for sales and aftersales support. Its main objective is efficient promotion of SuperJet on developed markets, aircraft customization for Western clients, aftersales support and a range of services all over the world.
The MS-21 project has been set as a separate division within UAC. Why is this program so crucial for United Aircraft Corporation? What are the main characteristics of this program and which position does UAC expect to gain through this program on the current competitive world markets? Besides, different rumors have been circulating concerning possible cooperation with China in the framework of MS-21. Is this feasible?
The MS-21 aircraft program is a breakthrough in terms of using new production technologies that are to provide high quality and competitiveness of the product in the most competitive sector of the world market – mid-range aircraft. As I have already mentioned, this project is the only one with a position of Vice President within UAC. The project that we are currently developing envisages a 25% increase of cost efficiency by reducing fuel consumption and other costs. MS-21 aircraft will be equipped with brand new engines and the aircraft as such will have new aerodynamics. Besides, due to broad application of composite materials in wings and tail assembly above all, this model will weight 15% less than existing equivalents.
Market entry of this aircraft should, hopefully, mark Russia’s comeback to the world market of civil aircraft as a full-fledged player.
Aircraft designers seem quite concerned with high petroleum prices which challenge every aspect of the value chain. How did high petroleum prices affect the UAC strategy in the short term? Would Russian aircraft products adjust to this factor in the future in order to increase their competitiveness?
Not only aircraft manufacturers are concerned with high petroleum prices, so are the airlines. Moreover, to me the perplexity of airlines seems more obvious. Airlines are trying to find ways to reduce their cash operating costs and one of the feasible options is renewing their aircraft fleets with more economical aircraft. In the last years order books of the largest aircraft construction companies have been filled with contracts for thousands of new aircraft.
In terms of the impact of this issue on UAC’s short-term strategy, I can point out that we have started to develop the Tu-204SM model. It’s basically a comprehensive upgrade of Tu-204 to achieve considerably lower fuel consumption due to reduction of the overall weight of the aircraft and other improvements, while keeping quite an attractive price for the machine. The term of developing the Tu-204SM modification will be much less than what it takes to develop a new aircraft. We hope to offer this product to, first of all, Russian airlines as soon as in 2-3 years’ time.
You accompanied President Medvedev in Beijing last May 23rd during his first state visit to the People’s Republic of China. What was the outcome of that visit in the sphere of aircraft cooperation? What is the current agenda for UAC in relation to cooperation with the Chinese civil aviation program?
In the course of the visit to China of President Medvedev and I met with the management of the recently established Commercial Aircraft Corporation of China and we agreed on running a special meeting to discuss the prospects of cooperation.
After that visit, a separate delegation visited Beijing and Shanghai, where we met with the management of the Commercial Aircraft Corporation of China and also AVIC-1 Corporation - that is in the course of joining with AVIC-2. We discussed the possible lines of cooperation, concerning the creation of new long-range aircraft – both narrow-bodied and wide-bodied. We have arranged further steps, including working contacts at expert level. Of course, it is still too early to announce that we are going to have a joint project with China but the tasks that both Russian and Chinese aviation face are almost the same: to create modern competitive products in the sector of long-range aircraft. These tasks enjoy an active state support in both countries. Joining engineering, technical, production and financial resources will in many ways simplify the solution of these tasks. However, it will also require respecting the interests of both partners.
NOTE:
RF President V. Putin signed a Decree “On Joint Stock Company “United Aircraft Corporation” (JSC “UAC”) on February 20, 2006. UAC was registered on November 20, 2006. UAC’s charter capital was formed by stakes in the following companies: JSC “Aviation Holding Company “Sukhoi", JSC “Komsomolsk-on Amur Aircraft Production Association named after Yu. Gagarin”, JSC “Ilyushin Interstate Aircraft-building Company”, JSC “Nizhny Novgorod Aircraft building plant “SOKOL”, JSC “Novosibirsk Aircraft Production Association named after V.P. Chkalov”, JSC “Tupolev”, JSC “Ilyushin Finance K°”, JSC “Finance Leasing Company” and JSC “TAVIA”, as well as with private shares of “IRKUT” Corporation.
Upon completion of am additional shares issue in 2008 UAC’s charter capital reached 104.97 billion rubles (about US$4.2 billion). The share of Russian Federation in UAC’s chartered capital is 91.3%.
UAC and its member companies’ priorities include design, manufacture, sales, operation maintenance, guarantee and service maintenance, upgrading, repair and utilization of civil and military aircraft.
| Company: | United Aircraft Corporation (UAC) |
| Position: | ex-President & Chairman of Executive Board |