Yury S. Eliseev, Salut
Release Date: 2008-11-24
Mr. Eliseev, the current market conditions are far from optimal for operation of many aviation-related enterprises. How has the current financial crisis affected the activity of your company?Of course, the external conditions have influenced the activity of Salut. I have been the General Director of Salut for over 10 years and, as far as I can remember, we never had easy times. I mean that the current difficulties are not the worst that we have faced.
How are you managing to continue financing your current directions of development?
Yes, we are VIP-clients of Sberbank of Russia and successfully continue our beneficial business relations. We are not quite happy about some changes in their financial policy but I am sure it is a temporary measure. The strongest blow to Salut was the falling dollar rate. Another important factor was the sharp and unjustified growth of metal and power prices. Within Russia, nickel is being traded at the level of the London Stock Exchange; I believe, in such situations, the state should intervene.
Did these conditions influence your product range?
Many products ceased to be cost efficient, such as export sales. Prices for materials inside Russia reached the level of world prices, although there were no grounds to raise the prices so sharply.
It might sound harsh but I would say that engineering enterprises were sabotaged by ‘monopolist’ companies that increased metal prices and kept them at that level. The majority of products turned unprofitable; it was disguised under so-called “market conditions”. Market implies manageable prices; in this case the prices were simply released and the entire sector was artificially forced into unfavorable economic conditions.
Low cost efficiency of engineering enterprises is, above all, due to unjustified prices for metal and fuel and power resources. Nickel alloys that we use inside Russia are more expensive than in the West and that makes our production uncompetitive.
So what do you think should be done?
(Russia’s Prime Minister) Vladimir Putin found a solution: he threatened to send a doctor accompanied by a prosecutor to a hospital where one of the metal ‘monopolists’ was. The price fell immediately.
Are you saying that political ‘will’ is necessary to reach equilibrium?
A manageable economy, I would rather say. But market economy requires preparation. In any case, further price increase is inevitable - it is a normal trend all over the world.
Can a commodity exchange be a possible solution?
Commodity exchange implies the presence of at least 2-3 large manufacturers. But high metal and power prices reduce competitiveness of engineering enterprises and slow down innovative development of the country.
Your most celebrated product is the engine AL-31F; your main competitor in this field is NPO Saturn. How are the current conditions affecting its development what is the situation in terms of competition with other companies?
On the one hand, growth of metal prices was a negative factor but, on the other, we improved the engine and reduced labour and material expenses and improved the technical characteristics. We have developed an upgraded engine AL-31F-M1 for the multifunctional jet Su-27SM (newer version of Su-27). These aircraft are already on alert status. Improved characteristics allowed a small increase of the price to compensate for consequences of a sharp increase of metal prices.
You are participating in the tender for creation of engine for the 5th generation jet.
The tender is underway. We insisted that the results were made on the basis of real metal aircraft models. A model that confirms the stated characteristics guarantees implementation of new generation aircraft in the nearest future.
Did Salut accomplish production of this model?
We are working according to the approved schedule; preliminary results will come in November and final decision will be made next year.
Concerning your relations with China, the latest engine contracts were completed, but we were unable to find information about other, more recent contracts. At which stage are your relations with your traditional partners?
These contracts were made in July, 2005, before the dollar rate began to plummet. As a result, all these contracts resulted highly unprofitable for Salut, and even then we managed to fulfill all contract conditions. The state contracts were signed by Rosoboronexport without our participation.
Our new contracts with China are a delicate issue. We continue our relations not only in product supply but also upgrade of previously supplied engines.
What has your joint venture with Liming Engine Manufacturing achieved so far?
We supply them with spare parts and also have joint projects for ground-based equipment development and engine upgrade. As far as contracts are concerned, we have a Russian-Ukrainian joint venture for supplies of AI-222 engine for Yak-130 aircraft; foreign states have made orders for over 100 aircraft. We also plan to make supplies for An-148 aircraft.
Mass production of Tu-334, a civil aircraft, has also begun. We hope that production will go quicker now that it has been relocated to Kazan. In the nearest future we will diversify production and expand the product range: power units, waste processing facilities, desalinization units…
Active diversification requires additional investments. Do you view your future in the sphere of diversified production or only in aviation?
Salut is the first Russian enterprise to produce aviation engines and we will continue this line alongside other spheres. All the diversified products have one common feature: they use gas turbines. We hope to reach a 50/50 ratio of aviation and non-aviation products.
A broad product range means stability. Military products depend on many factors, politics among them, whereas civil products can be independently supplied to other countries.
China and other countries in Asia are showing interest in industrial units on the basis of gas turbines. What are the prospects for these products?
As an example, we plan joint development and production in South-East Asia where desalinized water is very scarce. Scientists predict that 2/3 of land will have extremely scarce water resources by 2015 - Africa, Middle East and South-East Asia. It is more feasible to construct complex and power consuming units locally.
So, what is your vision for Salut’s further development and what is China’s place in it?
We aim at normal cost effectiveness, modern products and high quality parameters.
Concerning Sino-Russian relations, everything is going smoothly. Our Chinese partners are also aware of the fallen dollar rate. We always reach compromise in our negotiations and pursue our business relations.
Concerning creation of market conditions in Russia, it is common knowledge that aviation needs qualified engineering and working staff. How does Salut manage this premise, given that the company is both mass producer and developer?
First of all, it requires a competitive environment. This condition is not sufficient but necessary.
Concerning preparation of engineers, our advantage is that we are based in Moscow where you can find higher education institutions (Moscow State University, Physical and Technical University, Moscow Finance and Technical Institute, Moscow State Technical University of Bauman) that train high class specialists of all technical profiles: metallurgists, mathematicians, designers. Besides, we have opened branches of 6 University departments allowing their students to alternate studies and work. We also have a college with 1,500 students for the regular labor force. Unfortunately, not all work according to their profile afterwards. Our solution is an integrated structure established according to a presidential Decree. The structure consists of enterprises that are regional branches of Salut and enterprises that are joint stock companies with state shares included in the authorized capital of Salut. This allows keeping mass production and hazardous facilities outside Moscow. What remains in the city are design bureaus with over 2,000 designers and technologists who develop new constructions and technologies. Young people come to study from the regions. So, one of the tasks of our Moscow site is to train new staff and give advanced training to the current staff.
| Company: | Salut |
| Position: | General Director, Doctor of technical sciences, professor, member of the ASSAD Board |