We Have Been Working To Consolidate The Industry Over The Past Four Years

United Engine Corporation (UEC) is currently going through tough times, much like the rest of the Russian aircraft manufacturing industry, with the liabilities of its member companies exceeding their annual revenues. In his first interview since his appointment, General Director VLADISLAV MASALOV tells RBC Daily reporter SERGEY STARIKOV how the industry is recovering from the crisis.

— You took over management of United Engine Corporation (UEC) not so long ago. Will there be any change in strategy?

— One of the primary goals I have set myself after my appointment is to build a sound organizational structure for the company and set up an up-to-date production group – like our major competitors on the global market. We need to ascertain what functions we should allocate to the Management Company of the Group and to the Group’s Divisions. Management at United Industrial Corporation Oboronprom put a divisional organization principle in place at UEC last year. It should be noted that the Divisions are not separate legal entities. They manage their corresponding plants, which continue to be owned by UEC. Today, UEC’s structure is comprised of four divisions: Combat Aircraft Engines, Civil Aircraft Engines, Helicopter Engines and Energy and Industry Programs. We are also considering the option of setting up another division to cover production of accessories and components at the Star Plant production site in Perm, Russia.

— Will the divisional principle be applied to the Design Bureaus?

— Yes, we will provide the Divisions with design, production and engine servicing capabilities to ensure optimal organization. This is precisely why we decided to transfer A. Lyulka Scientific and Technical Center from NPO Saturn to Ufa Engine Industrial Association (UMPO), since A. Lyulka Scientific and Technical Center’s main focus has always been the design of combat aircraft engines which have always been produced by UMPO and Salut, and not by NPO Saturn. And vice versa: NPO Saturn Design Bureau and Aviadvigatel Design Bureau are two related design organizations which have historically been mainly concerned with civil aircraft engines.

— Will sales units at plants be closed down?

— Yes, plant sales units will be closed and transferred to the Divisions. This process will be linked to the development of a debt refinancing program.

— Are there plans to set up a division for rocket engines?

— This has yet to be discussed. We are cooperating closely with NPO Energomash as the core designer of Russian space propulsion units.

— Why are the Perm plants being merged with Saturn in Rybinsk?

— These companies have not been merged from the point of view of share capital. Perm Engine Company (PMZ), Aviadvigatel and NPO Saturn remain independent legal entities, each being an UEC’s affiliate. Saturn expects an increase in production in 2013 as a result of being awarded a contract from China to supply D-30KP engines. As regards the Perm branch, there has been a decline in orders. Production needs to be integrated for certain individual elements and assemblies which could be more efficiently produced by another plant. For example, Saturn is the undisputed leader in the manufacture of cold engine section parts. At the same time, Aviadvigatel designs PD-14 engines and lacks the experience in modern aircraft engine certification which NPO Saturn’s Design Bureau has gained as a result of cooperative work with Snecma.

— And when will FSUE Gas-Turbine Engineering RPC Salut join UEC?

— The enterprise will be incorporated by the end of this year, the entire shareholding will be transferred first to Rostec, then to Oboronprom, and finally to UEC. But Salut is already – de-facto – closely integrated in UEC, and we already consider Salut in our production and finance plans. It already operates as part of the Combat Aircraft Engines Division together with UMPO and Chernyshev MME. The Division has already produced the AL-31 engine: components and hot section parts are manufactured by Salut and assembly and testing of cold section parts are provided by UMPO. When this concept is out in place, we will have site specialization along with a three-fold increase in serial production.

— For how long will Salut’s site in central Moscow remain operational?

— The site will be retained but the production facilities will see considerable changes. The Moscow and Omsk sites are already part of the Combat Aircraft Engines Division. Within the context of integration and specialization processes, changes are expected which will result in Salut producing certain parts and components for UMPO and P.I. Baranov OMO, Russia. At the same time, we intend to concentrate the design units of Combat Aircraft Engines Division at Salut’s Moscow site by merging the Granit Research and Engineering Centre and the A. Lyulka Design Bureau. In the longer term, the whole Corporation’s design centre will be located there. The head office of UEC has now moved to the site. We are also enhancing local pilot production capacities.

— When are you going to sell the Chernyshev MME site?

— Production of the RD-33 engine should continue in a new integrated configuration from January 1, 2016 onwards at the Salut Moscow site (components and parts), UMPO site (components, parts, assembly and testing), and the Salut Omsk site (repair kits and repairs for RD-33/RD-93 engines). Relocation of production facilities from Chernyshev MME is being considered due to the unprofitability of the plant. We are unable to complete any substantial upgrades at the plant since plants like this are classified as class three environmental hazard facilities, and reconstruction of facilities like this within the Moscow city limits is prohibited by law. Consequently, we made a decision – a very difficult one – to move the production facilities from the Chernyshev MME site. But for UEC this brings certain commercial benefits, since after relocation the plant will cease to generate losses, which currently exceed 12 billion Russian roubles.

— Will Motor-Sich join UEC?

— This would hardly make sense. We have already set up production of the VK-2500; moreover, we are the designer of this engine. The D-436 is a very small series. There is integration potential only for the D-27 engine which is installed on An-70 transport aircraft.

— Does UEC expect to assemble D-27 engines in Russia?

— We are currently in the process of discussing key points with the Russian Ministry of Industry and Trade and the Ukrainian Ministry of Industrial Policy. We see the potential relationship in the form of a joint venture where the members will have equal intellectual property rights to the results of their joint efforts. But, in any case, a final decision will be based on economic expediency.

— Has the contract for delivery of PS-90 engines for the Il-476 been signed?

— A contract has not been signed with PMZ. We are negotiating prices and the possibility of adjusting the schedule for delivery of parts with United Aircraft Corporation (UAC) in order to be able to maintain the output of the Perm plant in 2013. The situation as it stands is that that UAC is expected to deliver only one airplane to the Ministry of Defence in 2013, so we will have to deliver only four engines. Therefore, we are trying to agree advance delivery of up to ten engines. We are preparing production of around 200 engines in total. Most of the engines are to be mounted on 39 Il-476 airplanes which have been procured by the Ministry of Defence.

— What about the PS-90A2 engine which is used in Tu-204 aircraft?

— We are ready to produce it, but the order is small so far. Merging Saturn and PMZ into one Division should allow us to cut production costs, so we hope this engine will gain popularity among Russian airlines.

— What are the prospects for the PD-14 engine, which is being developed for the MS-21?

— The Aviadvigatel Design Bureau in Perm completed testing of a demonstration engine in September 2010 which confirmed the functionality of parts and assemblies, including those manufactured using so called “critical technology”. We have a contract for delivery of 50 engines of this type to Irkut. Serial deliveries of the engines should start in 2017.

— Is the number of engines for Sukhoi Superjet 100 really insufficient? There were a number of indications last year that the problem with the aircraft was due to the late delivery of engines.

— There is no delay at all. Saturn is meeting its contractual obligations to PowerJet and Sukhoi Civil Aircraft (SCAC) in full. A total of 36 engines were delivered in 2012. There are also spare engines which are owned by PowerJet and are used in servicing and maintenance.

— Nevertheless, six of the ten Sukhoi Superjet 100 aircraft are said to be grounded at Moscow’s Sheremetyevo Airport most of the time.

— This is down to Aeroflot; it is more an operational issue. The rate of failures or departure cancellations due to power plant condition is 0.1. Regardless, the situation is that documents concerning the operation and maintenance of the engines have been awaiting implementation by PowerJet and Aeroflot for more than six months, so we are currently lacking any basis to commence scheduled works.

— How is the implementation of the Import Substitution Program going at Klimov?

—An initial engine comprised of all Russian parts was assembled and delivered for long tests on December 18, 2012. Around 50 units are scheduled to be manufactured this year, and we expect to be able to bring production output of VK-2500 engines with only Russian parts and components to 500 units a year by 2015. So, the enterprise is expected to meet the engine requirement of Russian Helicopters in full by 2016.

—We hear a lot about re-engining An-2 airplanes with imported engines, is this really going to happen?

— We have a domestically produced engine for this project. It was manufactured by P.I. Baranov OMO, with around 20 units delivered until production was halted due to lack of orders. Nevertheless, the capacity has not yet been lost, so the plant is still able to produce the engines. However, based on a response from the Russian Transportation Ministry to our request, there are no plans to produce a Russian engine for the An-2; instead, there are plans to use an imported one.

— Why is the Ka-62 helicopter fitted with a French engine?

— Unfortunately, our RD-600 was not ready on time. But we are discussing local production of certain components for the Ardiden engine at the Klimov Plant. We have both the competence and production facilities. Incidentally, I would like to mention that we are considering licensed production of proven engines which are used in Russian airplanes and helicopters. In this way, we hope to close the gap in capabilities for designing and constructing a wide range of up-to-date aircraft engines with EASA and FAR certifications.

— What are the prospects for long-term cooperation with China?

— We are currently actively cooperating with China and delivering new engines of various modifications for combat and transport aircraft, with more than 1,000 engines delivered in total. Around 250 engines have been delivered in 2012, and about the same number is expected to be delivered in 2013. Work on the legalization of licensed repairs has shown some good results, with a contract signed for TV3-117 and VK-2500 engines.

— Are there any plans to set up a joint venture?

— We are discussing options for cooperation with Pratt&Whitney, Honeywell and AVIC. A JV with GE producing gas-turbine units is already operational.

— What is the scope of work under Governmental Orders performed in 2012?

— UEC member companies met their contractual obligations to a total amount of 27 billion roubles in 2012. According to our estimates, the number of defence orders from the Russian Government for UEC member companies will grow by more than 15% in 2013.

— Are there any plans to sell shares in UEC?

— We have set ourselves the goal of carrying out an IPO or finding an investment partner, but not within the next three years. We have been working to consolidate the industry over the past four years, and now this effort is just reaching completion. Moreover, any change in capital structure will impact on our ability to participate in the Russian Government’s Federal Target Programmes. We are now engaged in the Programme for the Development of the Defence Industry, the Programme for the Development of Civil Aircraft and the National Technology Pool Programme. Participation in these and other Government Programmes is one of UEC’s top priorities.

 

Source: 
RBC Daily (Moscow)

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