Russian Commercial Aviation Faces Uncertain Future
One of the world’s most important players in commercial and military aviation today is Russia’s United Aircraft Corporation (UAC). The UAC was founded by decree of President Vladimir Putin in 2006, in a move intended to consolidate Russia’s struggling aviation industry. The decree merged the country’s leading civil and military aerospace companies into a single conglomerate, in which the government has a majority stake of 80 percent. According to UAC’s mission statement, the move was designed to “protect” the innovation of Russian civil and military aircraft technologies. Billions of dollars have been invested in the new company, with a hundred billion ruble capital injection as recently as March 2015. Despite this, manufacturing capacity falls woefully short of demand.According to Aviation Week, the conglomerate is expected to produce a mere 36 planes, leaving 192 units unfulfilled. Additionally, the UAC is struggling to attract foreign airlines outside of the former Soviet republics to purchase its jets.
The recent halving of the ruble’s value relative to the dollar also complicates the situation. The ruble’s devaluation has caused the cost of important components such as the avionics suite, hydraulic systems and other electronics to double . This has led some to suggest Russian suppliers can keep costs down through import substitution, a practice which incentivizes local industries to manufacture parts that they would otherwise import.
The ultimate feasibility of this remains to be seen, however, as the Russian-developed components necessary for airplane production have not undergone foreign commercial certifications. This would make the planes ineligible for purchase by foreign airlines, a problem the UAC faces even without the expensive practice of import substitution.
Furthermore, internal and external political issues have plagued the UAC in recent years. Internally, members of the company’s high-level management have extremely close ties to Putin and the former KGB. The majority of order requests for the UAC’s new Sukhoi superjet have also come from state-owned airlines with a stake in the UAC’s success. These factors have called the UAC’s integrity into question.
Conflict with Ukraine and Russia’s deployment of troops along its border with Poland and the Baltics have even caused some former Soviet countries to pull out of joint-UAC ventures.
China has been the one ray of hope in Russia’s project to expand the aircraft industry. This year, Chinese airlines signed a purchase agreement with UAC to order 100 Superjets over the next 3 years. The UAC, which is as deeply indebted to foreign countries as it is to the Russian government, is eager to pursue more contracts with Beijing due to its abundance of investment capital.
However, if the UAC is to succeed as a competitor to Boeing or Airbus, the company must look beyond its borders for new customers and increase its accountability and reliability to ensure it retains them in the future.