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 24 July 2008
 Successful Year for Aerospace Manufacturers


Russia & CIS Observer, #3 (22) July 2008


Konstantin Makienko


The most successful businesses across the Russian defense industry in 2007 were aerospace and air defense companies. This trend was reflected in the annual rating of defense enterprises published by the Russian defense think-tank – Centre for Analysis of Strategies and Technologies (CAST).

Only two of the 10 top-rated companies – Almaz-Antey Air Defense Concern and Tula Instrument Design Bureau – do not represent the aerospace sector. In fact, Al¬maz-Antey – which topped the rating for the third year in a row – incorporates an entire industrial sector. Seven out of die top eight aerospace companies are involved with the production of Sukhoi Su-30 fight¬er jets, the associated engines, systems and weaponry. Their top positions in the 2007 rating are explained by an impressive num¬ber of export contracts executed that year, with Su-30 fighters delivered to India (16 Su-30MKI aircraft and eight assembly kits), fenezuela (12 Su-30MK2V ver¬sions), Malaysia (10 Su-30MKM aircraft) and Algeria (four Su-30MKAs). Also worth mentioning is the Russian Helicopters holding company, which came up high on the list for the second year in a row, thanks to the steadily gro¬wing production of combat and transport helicopters at Kazan Helicopters and Ulan-Ude Aviation Plant. For the first time since 2001, the rating did not in¬clude MiG Corp., which failed to make its 2007 revenue data available.


Structure of growth

All the rated companies continued to ramp up production in 2007. The highest output values were turned out by the in¬dustry leaders: Almaz-Antey ($3.1 billion, compared to $2.3 billion in 2006), Sukhoi Aviation Holding Company ($1.8 billion. up from $700 million), Irkut Corporation ($1.2 billion, compared to $620 billion) and Tactical Missiles Corporation ($1.1 billion, up from $700 million). Tula In¬strument Design Bureau also demonstra¬ted a significant increase in revenues ($496 million, compared to $360 million in the previous year), as did NPO Saturn ($617 million, up from $290 million) and Degtyarev Plant ($266 million, compared to $170 million). The average total rev¬enue growth across the top 20 was regis¬tered at about 16% in Russian currency value, or just slightly higher than con¬sumer price inflation for that year – but considerably lower than the growth of prices for industrial products, especially for metals. At the same time, the output growth for military products averaged more than 25% across the top 20 rated companies.

Last year put an end to the trend to¬wards a gradual – albeit slow-paced – increase in the share of domestic con¬tracts and civilian production, which had been observed for the previous two or three years. The only two leading defense companies whose bulk of export con¬tracts continued to decline throughout 2007 were Almaz-Antey (this could indi¬cate that the concern has a large domestic air defense contract under its belt) and Aerospace Equipment Corporation, which additionally reported a noticeable increase in the output of civilian pro¬ducts. Aerospace Equipment Corpora¬tion has long stood out for its balanced structure of revenues, with a high share of civilian products and domestic contracts. The resumed growth of exports and military products last year was a conse¬quence of massive Su-30 shipments to foreign customers. This factor boosted the industry leaders' revenues to such a level that those companies (primarily shipbuilding enterprises) with no large-scale export contracts in their backlogs found themselves totally outside the ra¬ting's scope. Export contracts, therefore, constituted the key revenue growth fac¬tor for the rated companies in 2007.


Industry leaders

Almaz-Antey topped the CAST rating for the third straight year – not only due to its huge revenues, but also thanks to the high rate of production growth. It is one of the few Russian conventional arms manufac¬turers that have been benefiting from con¬sistently-growing government defense or¬ders. The company has been contracted by the Defense Ministry for several re¬search and development programs, and recently launched series production of the S-400 surface-to-air missile system and other types of air defense weaponry. This assumption is supported by the share of export revenues (56%) in Almaz-Antey's total sales, which is rather low when com¬pared to other leading Russian defense enterprises. Almaz-Antey was one of the few defense contractors that continued to increase the share of domestic sales in their revenue structure. According to some reports, Almaz-Antey last year de¬livered four battalions of the S-300PMU-2 surface-to-air missile system to China. It is safe to assume that the concern's rev¬enues this year will be at least as high as in 2007, and that it will remain Russia's leading defense manufacturer.

Sukhoi Holding Company reported the highest defense-related revenues across the industry, primarily thanks to the large Su-30 export contracts. At the same time, domestic sales accounted for a significant portion of the company's to¬tal revenues (nearly 30%). Contributing factors were the continuing program at the Komsomolsk-na-Amure KnAAPO plant to repair Su-27 fighters and upgrade them to Su-27SM standard, and the con¬struction of new-generation Su-34 strike aircraft at the Novosibirsk-based NAPO plant, which is also running a program to upgrade Su-24 front-line bombers.

Irkut Corporation nearly doubled its revenues last year on the back of massive deliveries of Su-30 aircraft and kits to In¬dia, Malaysia and Algeria. The corpora¬tion is expected to turn out comparable revenues this year, as aircraft deliveries to these countries will continue. Additiona¬lly, Irkut is set to begin deliveries of Yakovlev Yak-130 combat trainers to the Russian Air Force in 2008.

Tactical Missiles Corporation consi¬derably increased its revenues for the se¬cond consecutive year, and boosted ex¬port deliveries of airborne weapons. It al¬so appears that the corporation has hefty contracts to manufacture airborne weapons and anti-ship missiles for air¬craft and warships previously delivered abroad. At the same time, domestic or¬ders represented a healthy 43%-plus share in the corporation's output.

The Russian Helicopters holding company made it to the top five of the rating for the first time, a direct consequence of its increasing production rate of combat and transport helicopters. Over 120 rotor-craft were built in Russia last year. The company was rated separately from Rostvertol (which is not yet controlled by Russian Helicopters) and parts suppliers (to avoid double counting of revenues for a single company). There is every reason to believe that, after Russian Helicopters acquires the controlling stake in Rostvertol and in the enterprises manufacturing Kamov helicopters, it will retain its high position in the rating. Its performance would also be boosted by an expected increase in rotorcraft production to 150-180 units a year.


Top Russian defense companies by Russian GAAP total revenue in 2007

Company

Sector

Revenue, $ mln

Share of exports, %

Share of civilian production, %

Personnel

2007

2007 vs. 2006

Almaz-Antey

Missiles

3,122

+36

56.0

11.0

81,857

Sukhoi

Aircraft

1,863

+ 160

71.0

8.0

over 30,000

Irkut Corporation

Aircraft

1,207

+95

64.6

2.0

11,585

Tactical Missiles Corporation

Missiles

1,110

+61

56.5

5.0

21,249

Aerospace Equipment Corp.

Avionics

820

+ 16

61.9

37.1

39,871

Russian Helicopters3)

Aircraft

695

+16

80.01)

100.01,2)

N/A

UMPO

Aero engines

619

+ 12

91.2

5.0

19,130

NPO Saturn

Aero engines

6174)

+111

5.4

71.5

24,159

Instrument Deign Bureau

SALW/Missiles

496

+38

89.0

0.51)

7,500

MMPP Salyut

Aero engines

485

+ 18

75.3

3.3

13,389

RTI Systems

Electronics

472

+35

3.5

12.9

8,122

Rostvertol

Aircraft

277

+24

52.8

35.4

6,639

NPO Mashinostroyenia5)

Missiles/Space

269

N/A

49.0

4.0

3,850

Degtyarev Plant

SALW/Missiles

266

+55

32.3

13.4

10,892

Kurganmashzavod

Armor

231

+ 18

20.0

60.01)

N/A

Vega Radio Engineering Corp.

Electronics

185

+20

2.3

10.2

8,981

Arzamas Machinery Plant

Armor

156

+46

23.0

25.01)

4,915

Ilyushin Aircraft Corp.

Aircraft

132

+55

34.2

53.8

2,668

Elara

Electronics

126

+48

0.3

18.8

4,107

Arsenal Machine-Building Plant ()

Artillery/Space

122

+21

8.0

75.01)

2,782

Source: Centre for Analysis of Strategies and Technologies

Notes:

1) – Estimated by CAST.

2) – All military or dual-use products.

3) – Combined revenues of all subsidiaries (see the corporate website at www.oboronprom.com) except: Rostvertol and Kronshtadt Company (no control-

ling stake in these enterprises). Vpered Moscow Machine-Building Plant and Stupino Machine-Building Plant (parts suppliers), Oboronprom joint venture (data not available).

4) – Consolidated index, includes subsidiary performance.

5) – Data for parent company onl




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