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LACK OF COMPETITION – WAY TO NOWHERE

The consolidation of Russia’s helicopterbuilding industry has reached its final stage. Much has been done, but much is still to be completed. On the eve of the HeliRussia 2009 show, we met with Russian Helicopters General Director Andrei Borisovich Shibitov to ask him a few questions.

Question: Mr.Shibitov, please, tell us how Russian Helicopters is developing now.

Answer: The company is developing steadily. Enterprises of various purpose located in various regions of the country in various economic conditions have been brought together, namely design bureaus, units and assembly plants. The most important thing was to work out the company management system, which is being successfully done, I believe. In April 2008, the helicopter-building holding’s strategy was accepted including seven main directions, namely corporate, financial, production, technical, R&D, marketing and social. Tasks and goals were defined, too. At present, we are elaborating work plans till 2011 and, of course, gradually implementing current ones. The main tasks are fulfilled according to the plans and directions we have determined.

Q: Will you dwell on the main results you have achieved?

A: First, we planned to create an efficient management structure. At this stage, we decided to assign management functions to a management company. We have signed contracts with all enterprises for delegating these functions to Russian Helicopters. Thus, critical strategic decisions for each enterprise are taken in Moscow in close cooperation with their leadership and considering all opinions. Second, we had to determine bodies to help solve tasks provided by the respective strategy. The tasks are quite different, so we had to focus the efforts and intellectual potential of our specialists on them. The science-technical council was set up to work out recommendations to the leadership in the respective field. Also, the council of chief engineers as well as commissions on quality and flight safety were established. Now, the IT introduction council is being created. A sole body was set up to manage the holding.

Third, we determined the product range, which should be constantly specified. The consolidated production plan has been approved. Three enterprises already have local re-equipment plans, another four ones will soon get them, too. In other words, the holding management system is really working.

Q: At the previous HeliRussia exhibition held last year, Rostvertol’s general director asked the holding leadership if orders from Russian Helicopters would increase. You say contracts with all enterprises have been signed, but are there any exclusions?

A: Rostvertol is fully included into the production process but, unlike other holding parts, the contract between Russian Helicopters and Rostvertol provides only for consultation services but not a sole executive body. Nevertheless, it does not influence the general situation. Despite such special conditions, Rostvertol has a positive approach making it a better partner than enterprises bound to us by strict contracts.

Q: Are you going to adjust Rostvertol to the unified framework?

A: Our relations with other enterprises are built under the unified framework. As for Rostvertol, if there are any changes in share capital, the owner will decide whether to change the existing system of relations or not.

Q: Could you tell us how the crisis influenced your plans?

A: Unfortunately, the crisis has influenced us, but the impact is not very sensitive. First, the crisis has slightly influenced the backlog of orders and previously achieved contracts. The companies reduced their orders, but this did not influence the production plan considerably. The cost of money and limited amount of loans affects our work much more.

Q: Do you plan to apply or have you already applied to the government for support?

A: We apply to the government and receive respective support. A loan accommodation mechanism has been created on the state level and we are using it. Of course, we would like to increase the share of loans and boost the process. But on the whole, I should say that the government understands our problems and does its best to help us.

Q: Speaking about markets and rivals, you are chiefly oriented to CIS and Asian countries… There are strong rivals such as Sikorsky and Eurocopter. Does Russian Helicopters plan to enter the European market?

A: Yes, we are planning to enter the EU market in the medium and long term. We are objectively estimating our opportunities. Now, we are mainly manufacturing helicopters designed in the Soviet era. That is why, our main task is to hold our traditional markets, namely India, China, Africa and partly South-East Asia. Of course, we are planning to expand our presence in Latin America, strengthen our positions in South-East Asia and by no means lose Indian and Chinese partners. As for the nearest tasks, we are going to promote our new models – the Mi-38, Ka-62, Ansat and Ka-226T. They will help us gain new partners and occupy new niches.

Q: What are the objectives of Russian Helicopters on the Indian and Chinese markets and in the global scale?

A: The market situation in India and China is rather complicated and we are chiefly delivering helicopters for local law enforcement bodies there. The main task is to increase the share of Russian Helicopters on the world market from 4% to 15% by 2015.

Q: Brazil has recently signed a contract for 12 Mi-35M helicopters. Why, do you think, Brazil has chosen this helicopter?

A: It is a very important event as we have been talking about choosing the Mi-35M for a long time, which resulted in this decision. I am glad that a deeply modernized helicopter with a new powerplant and new rotary system has won a tender beating the Tiger advanced European helicopter. This choice was made due to a number of reasons including the helicopter’s new feature – good combat performance at night. Due to enhanced flight characteristics and reasonable price - the so-called cost/ efficiency factor – we have won this tender.

Q: What are your new plans for cooperation with foreign companies? What is the state of the joint project with Augusta Westland on the license production of the AW139 helicopter in Russia?

A: I cannot help mentioning good rate of work, close cooperation and mutual understanding with our colleagues from Augusta Westland. Though we are competitors on the global level, the production of Augusta Westland 139 helicopters in Russia is a mutuallybeneficial project. We are going to sign a license contract soon. The site on the premises of the Moscow Helicopter Plant has already been allotted. I think this project will be implemented on schedule.

Q: Will you tell how is the cooperation with Canadian company Pratt & Whitney developing now?

A: There was a good working atmosphere in our relations before. But in summer 2008, our cooperation was frozen due to political reasons. As far as I know, the US influenced the decision. But I hope this joint work will be resumed. The both sides do their best to solve this problem. Of course, I wish policy does not affect economic relations between business partners.

Q: What is the situation with the Mi-38 project now?

A: A delay in deliveries of experimental engines curbed this programme, so we have to speed up developing the helicopter version of the TV7-117V engine. The work is being implemented rather quickly and I think it will not be delayed for more than a year.

Q: Do you think foreign companies aim to enter the Russian market alone or only jointly with a Russian company?

A: There are several approaches. Even the same companies have different approaches in various sectors and there are various forms of cooperation. Of course, some companies directly enter our market, it is only natural. We are living in the global economy and have to compete on our territory, too. But there are spheres of cooperation that are mutually beneficial, which is proved by projects with such companies as Augusta Westland and Pratt & Whitney. Also, we are discussing the development of a heavy helicopter with our Chinese partners. In fact, we have to adjust to the global economy and carry out considerable integration in the helicopter-building sphere as well.

Q: And do you plan to invest into foreign companies in future?

A: Speaking about assets, we considered such direction. But the current financial crisis has influenced these plans. We wanted to acquire some assets of European maintenance enterprises and established a maintenance enterprise providing service to Russian-made helicopter in India. Also, we are seriously considering cooperation with India on the joint development and production of helicopters. There is a project with China, which I have already mentioned. Thus, we are planning both to buy assets and create joint ventures with foreign companies in the medium and long term.

Q: How can you estimate Russia’s helicopter market today?

A: The Russian helicopter market may revive in the second half of next year. It is hard to speak about the number of manufactured vehicles, I will say a few words about the quality of the market. Such helicopters as the Mi-8 and Mi-17 are widely represented on this market, while it badly lacks 3.5-, 5- and 6-t ones. It is the lack of light and medium helicopters that makes some market segments low-profitable and lossmaking. That is why, we are planning to start manufacturing the Ka-226T, Ansat and Ka-62 as soon as possible. Besides, I think the jointly-produced AW139 will occupy a deserved place on Russia’s market.

Q: What do you think the real share of acquisitions by the UTair airline is? !"A: Now, UTair buys about 60% of civil helicopters we deliver to the internal market, which is quite much. If the crisis does not change the plans, this figure will remain almost the same for a year or two. Although, it may decrease in the future due to joint projects with Gazprom and other Russian companies being discussed now.

Q: You are going to present an advanced high-speed helicopter at HeliRussia 2009. Could you tell us about this project in detail?

A: For the first time we presented the advanced high-speed helicopter project in short at the previous exhibition. Now, we are continuing this programme and want to tell other people about it. Our foreign colleagues and competitors – Sikorsky and Eurocopter – have already started such projects. We are now carrying out pre-design studies to clearly determine the requirements and main points needed for R&D works. So, this is the main thing we are going to tell about.

Q: And who will finally choose the developer of this helicopter?

A: There are various alternatives and we encourage such an approach as only technical competition within the holding allows choosing the right solution.

The lack of competition is the way to nowhere. We encourage the competition of ideas and technical solutions. At the current stage, we are considering projects of the Mil Moscow Helicopter Plant and Kamov Design Bureau, which can be explained by many reasons. They have different approaches and we will find the most efficient one. They offer various niches and we have to choose the right niche for this takeoff weight. The high-speed helicopter is to be created in 7-10 years. The decision-making system has been approved with the respective body taking them at each stage. The design committee considering this project is the main body. The expert council determines the technical feasibility of the project. And finally, the high technical council makes recommendations to the holding leadership on complicated technical issues.