Far Eastern producer sees its future in missiles starting with the Mosquito (1400 words)

Published: 8/10/2000

With the announcement by the Turkish Premier that they were entering into discussions with Bell regarding the purchase of 145 attack helicopter in preference to Kamov's offering of the Ka-50-2. The accusations have been flying regarding the use of heavy political pressure by the Americans to persuade the Turks to choose a US option. The Turkish government however, have made it clear that they see the negotiations as being far from over and that although Bell gets the first bite at the deal, but should “problems arise”, they can always switch to the Russian /Israeli option. A threat, which has been seen as a warning to the US that the Turks do not intend to roll over and are looking for what they see as a competitive deal. This hope has given Russian Deputy Premier Ilya Klebanov a small window of optimism and in the last couple of days has spurred him to announce an improved financial package for the tender and a declaration of Russia's intention to fight this one to the bitter end for the deal. It has also led to speculation as to what deal may be offered to the South Koreans currently short listing attack helicopters for their own 40 aircraft tender due to be announced in September. With the suggestion that Russian debts to South Korea could be paid off in helicopters, although how attractive this option would be for the producers has yet to be disclosed, given the payment record of the Russian state. For the helicopter's maker Progress, the likely failure of the deal leaves them with their single privately financed tandem prototype of the Ka-50, the Ka-50-2, which was completed in June of 1999, when the Turkish authorities made it clear that they had a preference for the tandem cockpit over the side by side Ka-50. The prototype according to local media reports is due to be delivered to the Chernigovsky aviation regiment joining the small number of Ka-50s that have been delivered. To date it seems unlikely that there will be further orders confirmed, despite positive statements at the height of the recent Chechen crisis that the order for 15 Ka-50s postponed at the end of 1999 until 2003 may have been brought forward. The investment that is available is being devoted to the upgrade of the existing fleet according to journal Military Technical Cooperation. This lack of momentum on new programmes has been recognised by the government and recent statements by the new minister for the industry Alexander Dondukov have recognised this fact as have a number of military think tanks, but little concrete has been suggested as a solution. There is also a lingering concern that the army is less than happy with the Ka-50 and would prefer the Mi-28, which was the “loser” in the competition for attack helicopter in 1995, but remains in the frame. With the Ka-50 programme in limbo, the plant based in Russia's Far East at Arsenyev, is left with a reported twenty airframes in various stages of manufacture, while the plant and contractors such as avionics producer Kronstadt based in St Petersburg continue to improve the aircraft's performance and capability by the installation of improved navigation and landing equipment. Since the plant reached crisis point in 1997 with strikes and two year wage backlogs Progress's General Manager Victor Pechenkin has endeavoured to insulate the plant from some the vagaries of the plant from the armed force's demand for its helicopter products by refocusing on military exports, which now constitute 90% of Progress's output. Recently focussing on the production of Moskit (Mosquito) missile systems for the Chinese Navy, with 50% of the contract being delivered by May and the balance by the end of 2000. There are also additional reports that China will order further Mosquito armed warships from Russia. The plant is also in the process of developing the surface-to-surface missile for smaller craft and according to the plant examining the possibility of land based operation. The effect of the exports for Progress have been to substantially reduce the plant's wage arrears, which have been reduce by a third form the 56m rubles in November of 1999. Current wages have also recovered from 500 rubles a month to 1,300 rubles and are still rising according to local reports. The layoff of 30% of the plant's workers at the beginning of 1999 has also been reduced with only 60 workers currently on forced leave from the plant that is now working a full week of shifts, and according to reports, some facilities are even working additional shifts paying overtime for the first time in the plant's history. According to Pechenkin, the plant will continue to pursue the development of its missile business, while keeping its helicopter projects such as the Mi-34 light helicopter and the light aerobatic aircraft the SP-55M designed by Moscow based Technoavia and a radical development of the Yak-55M according to its General Designer Vyacheslav Kondratyev. Progress produced over 100 Yal-55M during the early 1990s. To date the plant has produced five of the aircraft all of which have already been sold. The Mi-34, a lightweight multipurpose helicopter, and the first helicopter built in Russia to perform a normal loop and roll, started production at Arsenyev in 1994 and was part of a programme to build 30 helicopters in the period between 1994 and 1995. The programme however, completed only five aircraft in 1995 and delivered one in the first half of 1996 due to lack of funding and was reported to have completed only 15 helicopters by the end of 1999 with deliveries to the Moscow Mayor's Office and the Moscow Police. Mil associate Mi-Light Helicopters (LVM) formed specifically to be responsible for the marketing of the Mi-34 in 1993 restarted marketing efforts in 1999, which involved plans for the establishment of service centre outside of Russia to support the exported aircraft. According to the plant a number of discussions have taken place with foreign customers and there were reports form the General Director of LVM Grigory Bodo in early April 2000 that discussions were taking place to possibly licence it to producers in Poland, Brazil and Malaysia, although the Polish producer Swidnik said at the time they had no knowledge of such plans and to and no agreements have been reached. The plant did sign a contract in May of 1999 for the delivery of six Mi-34 to the Nigerian government for delivery at the end of 1999.According to LVZ the delivery has not occurred but discussions are continuing. In the domestic market the plant has continued to share in some of the increased spending on helicopter forces by participating in the upgrade of Mi-24s built at the plant during the eighties where production peaked at 165 aircraft a year with 1,000 aircraft produced at Arsenyev and Rostov between 1976-1986. The first six helicopters for upgrade have been delivered and according to the plant the upgrade to Mi-24M will potentially lengthen their life by a further ten years according to Mil, the designer,although the Russian Army,the helicopters operator are reported to be more sanguine and looking for 5 years. Given the shortcoming of funding it would seem likely that the upgrade business could be considerable given the large numbers of Mi-24s, currently around a thousand aircraft in service with he Russian Army, with less than 200 reported to be in flying condition. In an attempt to diversify its output the plant has started a number of other activities including the production of furniture, which has been in process for some time. The production of washing machines, although the product does not appear to have been well received and sales have been slow. Other projects include the production of water filters. Few of the diversification programmes however, have provided a significant contribution to the plant's revenues or a long-term option to replace or supplement aerospace contributing in 1999 less that 2% of the plant's revenues. In 1999 the plants gross margins grew from 4% to 20.2% on revenues of 39m rubles ($1.56m), but still left the plant with a loss of 22.8m rubles, which the company attributes to the impact of the falling ruble and the company's exposure to the hard currency loans. The plant has reduced its foreign shareholdings from a reported 28.17% in 1999, in response to the threat of having military production withdrawn due to the plant's ownership exceeding the 25% limit on foreign ownership placed on military producers.. Foreign holdings now represent 8% of the stock, with the state retailing 50% plus one share along with thirty other holders.

Article ID: 1987