How is the process of the corporate development of Sukhoi AMIC going on?

Three directions of the development of the Sukhoi complex can be singled out.

The first direction is related to the technical development of products offered on the market. Firstly, it is the development of a united technical strategy of upgrading the Su-27 (Flanker) fighter family, the formation of a united concept of upgrading aircraft equipment, the implementation of a long-term concept of transition from separate upgrading options to a united complimentary constantly advancing system. Secondly, it is the development of promising aircraft systems. It is understandable that here a fifth generation system is in question. Thirdly, it is the diversification of production, primarily the development of significant projects in civil aircraft making. This is one group of questions tackled in the framework of integration.

The second direction is related to working out a mechanism of interaction between enterprises within the Sukhoi complex, distributing orders between enterprises, distributing funds and finding a balance between the head company and enterprises belonging to the system. A number of documents have been prepared by now that describe the arrangement of this interaction the ideology of which implies the formation of appropriate committees by all members of the association. Thus, the solution of key questions will become a task for all members of the system. Committees for strategy, for maintenance services, for financial questions, for intellectual property and several others will be set up, i.e. we are developing a mechanism of interaction in the framework of a single entity.

The third direction is related to the completion of the formation of the aircraft military industrial complex itself. A presidential bill has been drafted that defines the objectives of the complex and describes the mechanisms of developing a single entity. From my view point, participation in long-term projects – and there will be no further development of the complex without it – requires close interaction between participants in the process. Contract relations are not a reliable guarantee of the steady long-term development of the entire complex, the successful implementation of programs or a guarantee of investments by each participant in the program. Long-term programs require stable institutional organizations. It is a different matter when it comes to short-term programs, then contract relations are quite justified.

When do you expect the Bill on Sukhoi AMIC to be signed?

I would not like to predict any concrete time. The work on the Bill is closely linked with the whole aircraft industry restructuring ideology that provides for the formation of major integrated entities. At the moment it is only possible to say that the document should be adopted this year.

Which of the two restructuring options under discussion seems more suitable to you: the formation of diversified multi-purpose holdings or vertically integrated corporations operating in a single product niche?

I think that the way of further restructuring can be chosen only after the completion of the first stage of restructuring the aircraft-making industry that involves to the formation of first level corporate entities. Designers and manufacturers of one type of equipment should be united first. It is impossible to skip a vital stage of development. It is hopeless to try to integrate hundreds of enterprises in a single entity. This is an impossible task. After the formation of first-level corporations there will be certain integration inside specific areas of aircraft development. I think that Sukhoi with Yakovlev and Mikoyan will interact on promising aircraft systems. On the other hand, there will be integration processes involving the manufacturers of civil aircraft and helicopters.

In general I agree with the integration decisions made now but once again I say it is my stance that the success of the second stage depends on correctly taken first steps – the completion of the formation of existing corporate entities.

What is the current economic situation at the plants and design offices belonging to AMIC?

Ninety percent of the resources AMIC members have at their disposal come from the implementation of export contracts. Hence, the plants that have foreign orders are in a better financial position than the enterprises that do not have them. Today the financial situation is the most stable at two enterprises of the complex: the Sukhoi Design Bureau and Komsomolsk-on-Amur Aviation Industrial Association. At both the situation will remain stable on the medium term creating, by the way, a basis for the successful implementation of long-term programs.

At the two other plants – in Novosibirsk and Irkutsk - the situation is quite complicated though for different reasons. To improve the situation concrete steps should be taken to carry out the existing contacts. Such measures are being mulled today together with the management of the plants and we hope the situation at the Irkutsk Aviation Industrial Association will improve in the nearest future.

Does the Sukhoi Design Bureau have a government order for R&D?

The government order for last year accounted for less than 10% of the Design Bureau’s order book. It was an order for aircraft upgrading.

Komsomolsk and Irkutsk have big contract portfolios. Even if today Irkutsk has debts the medium-term prospects of the enterprise are clear and related to the 1996 and 2000 contracts with India. And what are the strategic prospects of Novosibirsk related to?

The financial situation in Novosibirsk started improving in 1999. That happened thanks to the export of Su-24 (Fencer) fighter-bombers to Algeria. We have a number of ideas the implementation of which will allow to fully overcoming the crisis at the plant. All of them are related to upgrade, export development and also the An-38 project. Firstly, AMIC, the plant management and the Air Force command seriously work on the program of Su-24M (Fencer) upgrade. Air Forces in Russia and abroad have hundreds of these aircraft, hence, there is a market for their modernization. Secondly, it is the Su-32 aircraft. Now we actively test it and will finish soon. Work is under way to promote the aircraft on foreign markets. Thirdly, there is the civil aspect. We think that Novosibirsk has accumulated very valuable experience in certifying An-38 aircraft and developing a quality control system for civil output. After mechanisms of acquiring and operating civil aircraft on a leasing basis are developed a rise in demand for this aircraft can be expected which should significantly improve the situation in Novosibirsk.

What is the financial status of AMIC itself, what are the sources of financing the head company, what are its functions and tasks?

As for Sukhoi AMIC, the headquarters are funded through participation in preparing and implementing export contracts. The task of AMIC is to coordinate these efforts. Its financial status is quite stable today. AMIC has a staff of about 70 persons and its main function is to coordinate the operations of the design bureau and serial manufacturers because tough interaction mechanisms should be established in the process of implementing R&D works. Coordination is also required inside the system itself. If one should speak of the AMIC development strategy, foreign economic operations should be named first of all. AMIC should forecast the advancement of aircraft on foreign markets, shape the technical image of aircraft and define the general prospects of aircraft development in the interests of the enterprises of the complex. Much attention is paid to the civil aviation sector. Thus, AMIC is working on a strategy of military and civilian aircraft from the viewpoint of its effective advancement on markets in the interests of the enterprises constituting the complex.

A big amount of work is also related to interaction with government bodies, government mediators in arms exports and imports. The implementation of export contracts requires the development of mechanisms to coordinate steps both inside the aircraft-making system and with government agencies.

Would you tell us about the present state of the S-37 military program?

As for S-37, last year the aircraft passed the testing program consisting of about 50 flights. We achieved a fundamentally new result in the process. The aircraft reached supersonic flight modes; we got confirmation of our wing calculations. General calculations proved correct, the behavior of the aircraft did not produce any unexpected results for us. This year we continue testing S-37; the results will form the core of our work on future systems and to a certain extent the core of the work to overhaul the family of basic aircraft.

Are there plans to equip S-37 with AL-41F engines?

We do not think that it is necessary to re-equip this first prototype to fit new engines. Further research on the use of fifth generation engines will be connected to general work on future aircraft systems. But AL-41F will not be installed in the prototype.

Has Sukhoi started work on a fifth generation fighter?

Undoubtedly, we connect the further development of the complex with work on promising combat aircraft systems. The upgrading of existing fighters does not meet all the tasks facing the Russian Air Force or our exporters. We are now checking the possibility of developing a new aircraft system. I will not go into all the details of this work. It is too early to disclose all the plans we have. But already today we are tackling the project from two sides. Firstly, from the technical side of the matter. Secondly, we are checking the organizational and financial aspects of the program of developing a new generation fighter. When I speak of the organizational aspects I mean among them financial as well and personnel maters. In general financing and organization are crucial for the program, as we have no lack of technical ideas. When we launch a program, we should have a clear idea of the sources of funding, the time of implementation, strategic partners, markets on which we intend to advance this output and the related risks. At the first stage we signed an agreement with several enterprises, design bureaus and leading institutes that will be working with us on the ideology and concept of the aircraft, developing the initial concept.

Do you think Russia in its present economic state can afford a transition to aircraft systems of a new generation? If you think it can, how can it be achieved?

If this objective is not put forward, one can give up for lost Russian military aircraft-making in general. It would mean admitting that the history of the Russian aircraft industry ended at the stage of producing aircraft systems of the fourth generation. In aviation a technical generation cannot be missed. We simply cannot skip the fifth generation and immediately get down to the sixth. Appropriate technologies and infrastructure should be developed. Knowledge and skills must be accumulated and personnel trained. The transition to every new generation is marked by a breakthrough in dozens and hundreds of new technologies, including fundamental. The industry advances to an absolutely new technological level. If a country has not reached the previous level, the transition to a new generation of aircraft systems is impossible in principle. Therefore, the option of freezing work on fifth generation aircraft is unacceptable.

As for resources, everyone understands that it is impossible to carry out all the R&D related to the new generation with budget funding alone. Hence, it is necessary to raise the question of deducting part of export returns to carry out the task. However, not through expropriation but through the involvement of exporters in the process of investing. At this exporters should have guarantees that they will be involved in the implementation of the future aircraft development programs. Thirdly, it is necessary to look for foreign partners. Today we are not simply selling hardware but licenses for the production of our aircraft. It is necessary to advance to the next stage – joint projects involving foreign partners. I think that these three priorities – a rise in government funding, the attraction of export returns and the development of the basis for international cooperation – form the road that will permit us to leap to the new generation.

It is essential to concentrate resources for the implementation of one program. There are too many programs today; there is an evident oversupply. Resources are scattered. It is necessary to clearly define the priorities, the core idea. I think that the project of developing a new generation aircraft and simultaneously upgrading the operating fleet should become such a core target today. The agenda of the day should be to clearly name the goal and work out algorithms of achieving it. It is high time to advance from competition between projects to investments in technologies, the development of materials, engines and avionics.

What civil projects are being carried out today at the facilities of the complex?

We are working in three directions in the sphere today.

The first is light aviation, Su-26, Su-29 and Su-31 aircraft, their upgrading, maintenance services and certification. Secondly, the development and launching of the Su-38 agricultural aircraft that will go into testing this year. Thirdly, the Su-49 trainer that is being developed together with the Air Force, ROSTO military sport organization and other interested parties. We believe that these projects have market prospects abroad as well as in this country.

S-80 and An-38 medium-range aircraft projects and also a vast program of amphibious aircraft, namely Be-200 and Be-103, form the second direction.

The third group of projects is formed by major civil programs the implementation of which should guarantee the operation of capacities comparable to those filled by defense orders. These are a project of a medium-range 60-80-seater aircraft and the project of a supersonic utility aircraft. We are seeking market prospects in these two spheres. We work proceeding from the up-to-date approach that development should rely on market studies, search for potential clients, the definition of financing mechanisms, the development of requirements to the aircraft and only after that the beginning of full-scale development.

After the process of corporate development is completed do you plan to insist on the right to independent foreign trading of military products?

The current government policy is that the governance of military-technical cooperation (MTC) is being seriously integrated. Hence, the independence of individual parties to military-technical cooperation is regarded from the angle of general centralization. To a certain extent we remain interested in our MTC rights being expanded but only in two directions. First of all, this applies to deliveries of spare parts and maintenance services, the consolidation of the policy in this sphere. Secondly, lasting projects related to a long-term strategy but not to the implementation of the current contracts. That is on the one hand, we would want to have more rights in operational questions related to deliveries of spares, on the other, in the sphere of developing long-term strategic programs. Such a license could improve the standard of servicing clients without contradicting the line the president and government are developing in governance over military-technical cooperation. Undoubtedly, there are no claims on our part to assume the functions of Rosoboronexport. By the way, I will remind you, that AMIC was one of the first economic entities to sign a general cooperation agreement with Rosoboronexport.

What markets are there for Sukhoi products besides China and India?

Southeast Asia, primarily Malaysia is one of the most interesting markets. The experience of using MiG-29 (Fulcrum) air superiority fighter by the Royal Air Force in that country created a very good basis for the further advancement of Russian aircraft to that market. Today there is serious interest in that country in aircraft of the Su-27 family. There is a fundamentally important point here. Malaysia is set on developing its own high tech base. Hence its interest in Russian military hardware is a very good indicator. Fighters of the Su-27 family have also appeared in Africa. We hope that other countries and continents will be added to the markets of our aircraft.