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In 2007 the country’s helicopter manufacturing plants were placed under the management of Russian Helicopters, which is now creating a specialized holding company and developing a strategy for the development of the sector. RBK correspondent Sergey Starikov interviewed OJSC Russian Helicopters Director General Andrey Shibitov about the current state and outlook for the development of the helicopter manufacturing sector in Russia.

Andrey Borisovich, what stage have you reached in the creation of a helicopter holding and the integration of Russia’s helicopter manufacturing enterprises?

We still have some distance to cover. For now, we have completed the first step of determining the structure of the holding and which enterprises will go into it. We have also created a management company that brings OJSC Mil and OJSC Kamov under one roof. In the near future, Russian Helicopters will assume management of the Vpered and Stupino machine building plants, and then Ulan-Ude and Kazan helicopter plants. Although Oboronprom holds a golden share of OJSC Rosvertol, it is not yet clear who will take on its management. We have finalized our product line and have begun the second stage of integration, which applies to after-sales servicing, marketing, and research & engineering. In organizational terms, the bulk of the responsibilities of plant directors general have been transferred to executive directors. Some functions, like coordinating work on the state defence procurement order, setting the product line, and platform development have been transferred to the management company.

Are there plans to bring the helicopter plants together in a single shareholding? What percentage of Russian Helicopters will remain in state hands?

The transition to a single shareholding will take place sometime after the middle of 2009. An IPO is an effective way to attract investment, but this will not happen before the end of 2009. It’s hard to say at this point precisely what share will remain in state hands, and how much of the holding will be sold to private investors.

Does the unification of the Kamov and Mil design bureaus imply the dominance of one school of helicopter design over the other?

That point of view is typical of people who see everything in old-fashioned administrative terms, instead of applying sound business logic and common sense. There is no point in maintaining some kind of artificial parity. Russian Helicopters is a profit-seeking organization, even if it is governmental. Our decisions must be based on an assessment of the prospects for success of a product on the market, not some allegiance to one or another design philosophy. Our objective is rather to combine the best from each school. When I worked at Mil, I held a very high opinion of the Ka-226, and I have always said that it has excellent market prospects.

How will determine your product line?

We approved a fairly broad line-up of models, even if some specialists have voiced their criticism. If you look at trends among Western manufacturers, you will see that they are extremely diversified in terms of niches. We are aware of our limits and know that we cannot work in every niche. So we will not, for example, try to make a super-light aircraft, since this requires a totally different culture and approach to design. For the next three to five years, our attention will focus on vehicles with take-off weights ranging from 2.5 to 15 tonnes, and heavy  helicopters.

We have identified “six plus one” models as most promising from a financial point of view. Given the major upgrades that went into its design, the Mi-8M will be in demand for at least 15 years. The Ka-226 is already in production and needs just a few changes to its profile to fully meet market demands.  The Mi-38 is still being tested and is slated for production in 2011. The line-up also includes prototypes like the Ka-62 and Mi-54, as well as the Mi-28N combat helicopter, which we are upgrading for export. Finally, the Kazan plant’s Ansat has been chosen by the MoD for training. There is a range of smaller programs underway like the Mi-34 but we do not have financing for them at present. The line-up also includes series produced vehicles like the Ka-32 in several versions, the Mi-17/171/172 and the Mi-35M.

How do you plan to fund these projects?

We are exploring several options. Banks are ready invest in aviation if you can show that you have done your marketing and can demonstrate prospects for solid returns. We are in close contact with the Development Bank and are finalizing a proposal for financing the “six-plus-one” projects that I have described.

Describe your relations with international helicopter manufacturers.

We work closely with Agusta Westland, Eurocopter and Sikorsky in areas where we have relatively little experience, such as helicopters in the 4.5 and 6 tonne classes. We still hope to join a consortium to make a European heavy-lift transport helicopter, and have proposed the Mi-26 as the base model. Tests conducted by the French MoD showed that it already meets 90% the specifications established for the project. If political considerations were put aside even for a moment, it would quickly become clear to all that from the technical and economic perspectives the Mi-26 is the best base from which to develop a European heavy-lift transport helicopter.

For the moment we have not formalized our negotiations with western manufactures. Cooperation will most likely take the form of joint-ventures for each project, rather than licensed production.

What is your strategy for the international arms market? Does Russian Helicopters have any breakthrough products?

From a marketing point of view, our priority is to maintain the positions we have established, and to adapt our products to meet the changing demands of our traditional customers. We also need to improve after-sales servicing.

We are looking to capture new markets, and are active in Latin America – not only in Venezuela, where we have a special relationship – but also in such countries as Brazil and Chile. We are ramping up our presence in South-East Asia, and wherever else there is a demand for military equipment.

We offer export versions of the Mi-28N and Ka-52 assault helicopters and a major upgrade of the Mi-8 with full night capability. We now also have military versions of the Ka-226 and the Ansat. Previously, we did not offer military versions of these classes of helicopters for export, but are now competing in several tenders. We also have a new version of the Mi-26 with a crew of two.

Describe the Mi-X1 and Ka-92 civilian helicopter projects.

Those are the provisional names given to two projects that we are advancing in the framework of a single strategy to create a high-speed vehicle. Like our Western partners, we are working to build the helicopter of the future that can reach speeds of 450 to 500 km/h. These vehicles will have smart avionics with elements of artificial intelligence that will simplify piloting and increase safety.

Tell us about the defence procurement order, and which helicopters will be delivered to the Ministry of Defence in 2008 and 2009.

The number of helicopters to be delivered is classified information, but I can tell you that the first orders were placed for the Mi-28N, Ka-52 and Mi-17-B5. We have also signed contracts to modernize the fleet and for operation and maintenance. Even though Russia’s defence procurement has grown considerably (spending has doubled since 2006), it is still, from our point of view, too low. Our armed forces receive ten times fewer Mi-17 helicopters than we export to other countries.

Is it profitable to work with the MoD?

I would not say that we sell our products to the MoD at dumping rates. These projects are not loss-making, but the profit margin is very thin. Helicopters are sold at higher prices in the West, with greater profits going to the manufacturer.

Experts say that Russian Helicopters is short on spare parts. Does this affect your ability to close deals?

 Yes, it does. We even have shortages of essential components like gear assemblies, and this has limited the production of some types of vehicle. However, we have largely solved this problem. Until recently, when we were making each helicopter as piece-work, it was impossible for the parts makers to estimate their future order book. How could they have been expected to invest to modernize production under such circumstances? Now we have given the enterprises a clear picture of the scope of orders for the next three to five years, and this has allowed them to invest in plant. Our concern now is with the second and third tier suppliers.

What share of the world market to you plan to fill?

We would like to capture 100% of the Russian market, but we understand this is not realistic. We do not look at Russia as a separate market segment. We aim to capture around 15% of the world market for helicopter equipment sales by 2015-2020.

What contribution does the new HeliRussia exhibition make to the development of Russia’s helicopter industry?

As with any exhibition, it provides an opportunity to display your accomplishments and to see what your competitors are up to. Although Russia is a great air power, it still does not have a specialized helicopter exhibition. Even the Czech republic has a small helicopter salon. We expect strong demand for our equipment and need to interact with potential customers, to get their feedback.

Describe the financial performance of Russian Helicopters in 2007.

I should describe our performance in terms of production rather than finances, since we have not yet consolidated our accounts and each enterprise keeps its own books. We produced 121 helicopters, which breaks past records, and for 2008 we plan to raise this figure to 200. But we actually need to make no less than 400 helicopters per year. Our order book is already twice the size of our production capacity, so we are almost fully booked to 2009, and 30-40% booked for 2010. For some models we are not able to meet demand and have to put off orders for two years.

RBC Daily (Moscow)