Russian Manufacturer Looks Toward Branching Out

Once the pride of Soviet avionics, Sukhoi fighter jets used to be assembled in great secrecy in the remote corners of Siberia, causing Moscow's Cold War foes a serious headache. Today, the producer of the latest generation of Sukhoi jets wants to work with Western aerospace companies, list its shares abroad and make more civil aircraft to offset falling state defence spending.

"We want to shift our focus towards assembling more civil aircraft, something we are currently not strong at," Irkut president Alexei Fyodorov told the Russian press as he strolled past Su-30MKI models lined up in this once top-secret factory near Russia's border with Mongolia. "It's not just military technology but our market strategy that counts," said Fyodorov.

Sukhoi aircraft exports are the backbone of Russia's state-controlled arms industry. But privately held Irkut holds a licence to assemble Su-30 model fighters -- one of the world's top combat aircraft and Russia's main defence export item. Fyodorov's plant -- a sprawling collection of featureless concrete blocks where 15,000 workers assemble aircraft for an average monthly wage of $300 -- makes jets mainly for India. The government, its chief customer in Soviet days along with Russia's communist satellites, has nearly halted jet purchases in recent years, leaving the once mighty industry in a sorry state. Nearly all Irkut's revenues now come from export sales.

"The defence ministry has limited its military spending in recent years...In one way or another, we need to offset this," Fyodorov said, adding he wanted more cooperation with Western defence technology giants to develop new planes. "It takes more than one company in the modern world to make a new aircraft."

Sukhoi aircraft exports are the backbone of Russia's state-controlled arms industry. Irkut wants to move into the market for amphibious jets market. Fire fighting planes, also known as water bombers, are in increasing demand after big forest fires all over the world. Irkut's BE-200 model, a heavy plane with giant water tanks, has already drawn much interest from the West, including a U.S. fire fighting firm. So far only the Russian Emergencies Ministry has placed an order for the multi-purpose aircraft, which can land on a lake and load hundreds of liters of water in minutes.Sergei Polishchuk, chief assembly line engineer, said Irkut had invested $30 million in renovating the factory's equipment in past years and wanted to spend more.

"Things have improved dramatically lately after a decade of post-Soviet stagnation. We are a lot more dynamic than before. It's pure psychology perhaps, but still nice," he said.

Fyodorov said Irkut was also eyeing further acquisitions following the purchase of a stake in aircraft design firm Yakovlev. It has also signed a deal with Europe's largest aerospace firm, Airbus parent EADS, to supply floor components. Currently Irkut is Russia's number two jet maker after the state-owned Sukhoi design bureau, whose Su-30 licence Irkut currently holds. Industry experts say Irkut could leapfrog its rival this year thanks to a number of big contracts with India -- sales and licensing deals with New Delhi are estimated to be worth $5 billion.

"We are also optimistic about the government's plan to unite aircraft makers under a single entity," Fyodorov said.

Irkut wanted to be a leading player in the giant holding company that would bring together Russia's top producers by 2005 to make them more competitive against global rivals, he added.

"The government has stressed it wants diversified capital ownership of the defence industry, both private and state," he said. "So we are very excited about the plan."

FMI: www.sukhoi.org/eng/home.htm