Russians Float Rationalization Plan
Involving Two New Industry Giants

The Russian government, evidently frustrated by the relatively paltry slice of the world market now held by its once-formidable aerospace industry, has kicked off an ambitious reform program which over the next several years is to consolidate upwards of 300 aerospace organizations into just six or seven major companies.

If the plan succeeds, by as early as next year there could be two just two Russian airframers: one dominated by the present-day MiG and Tupolev and the other by Ilyushin and Sukhoi. By the end of the program's second phase, in 2004, there will be the two big airframers plus four or five other entities encompassing Russia's engine, avionics and armaments manufacturers.

The new companies are deliberately being kept diversified-for example, the airframers will each produce civilian and military aircraft, and both will make fixed-wing aircraft and helicopters-so as to foster competition and to make them less vulnerable to business cycles, Deputy Prime Minister Ilya Klebanov told Show News.

The scheme will reportedly cost some $7.7 billion.

The initial MiG-Tupolev entity, designated PHBC-1, will also include Kamov, Aviastar, KAPO, Aviakor, Sokol, Progress, KumAPP and Krasnyi Oktiabr.

Besides Ilyushin and Sukhoi, PHBC-2 will include Mil MVZ, Yakovlev, Myasishchev MEZ, Beriev, KnAAPO, IAPO, NAPO, VASO, Rostvertol, Kazan Helicopter, U-UAZ, Saratov Aviation, and Smolensk Aviation.

Ownership structures have yet to be determined.

While the Russian aerospace industry is tiny by Western standards (and in even rougher shape by historical standards, as during Soviet times it accounted for as much as 60% of world aircraft output), its recent growth has been impressive. Russian military aircraft exports were worth $1.33 billion last year, about 66% better than in 1999.

Military aircraft and armaments accounted for 69.5% of Russia's total industrial output in 2000, while civil aircraft accounted for an additional 14%, and consumer goods just 17%. Work on a "fifth-generation" fighter is expected to account for more than 40% of Russian defense R&D outlays by the end of the decade.