The June 5 signing of a contract for work on Airbus A320 cargo conversion program appears to have restored Russia’s position as a full partner in Europe’s EADS group. The pact could signify repair of relations damaged in 2006 when the German and Russian governments disputed the position of Russian shareholders in EADS.
The $360 million deal is between Russian and European shareholders in the Airbus Freighter Conversion (AFC) joint venture formed last year and headquartered in Dresden, Germany. Russia’s NPO Irkut and the new United Aircraft Manufacturing Corp. (OAK) each have a 25-percent stake in the AFC and they will provide half the funding to prepare conversion documentation for the A320 P2F program to convert 10- to 15-year-old A320 airliners into freighters.
The AFC anticipates demand for 400 conversions by 2015 and is set to begin deliveries to its launch customers in 2011. The conversion and life-extension costs about $2 to $3 million, not including the price of the airframe, which is expected not to exceed $10 million. The converted A320s will be able to carry just over 46,000 pounds of freight and will have a range of almost 1,900 nm.
The AFC partners are investing about a third of the estimated $150 million required for the A320 P2F development; banks are to provide loans for the rest. The program is backed by about 100 preliminary orders.
Under the latest agreement, Russian engineers will be working with German colleagues to prepare design drawings for the manufacturing process. Up to 75 percent of the parts for the conversion kits will be manufactured at Irkut’s IAZ plant in Irkutsk.
The kits will be packaged in Irkutsk before being sent to the sites performing the A320 P2F airframe work–namely, the EADS plant Elbe Flugzeugwerke in Dresden (starting in 2010) and its new factory at Zhukovsky near Moscow (in 2012). Elbe Flugzeugwerk has a 32-percent stake in the AFC, while Airbus has 18 percent.
The Dresden facility has the capacity to complete 15 to 20 conversions annually. The Russian site will be able to handle up to 45 conversions.
According to Irkut president Oleg Demchenko, the AFC partners will be doing no more than five to 12 conversions each year in the first three years of the program, but are expected to increase output to 30 to 35 by 2015.
A350 Missed Opportunity
While its inclusion in the A320 P2F program fulfills Russia’s ambition to become a full partner in EADS, the victory was achieved only after Russian industry failed to take advantage of the much larger opportunity with the new A350XWB airliner. Moscow was offered a stake of 5 to 10 percent in the new Airbus program, but the government would not accept it after the German government refused to accept Russian representation on the EADS board.
In 2005, EADS purchased a 10-percent stake in Irkut, which it has since converted into a 3-percent holding in OAK. A year later, Russia’s Vneshtorgbank (VEB) purchased a 5.02-percent stake in EADS for $1.225 billion.
Deeply offended by German Chancellor Angela Merkel’s refusal to accept Russian directors for EADS, the Russian government blocked the plans for VEB and OAK to become full risk-sharing partners in the A350 program. Nonetheless, the two companies are involved in A350 work as second-tier suppliers, and IAZ and VASO already contribute to both the A320 and A380 programs.
According to Vadim Vlasov, head of EADS Russia, the European group is still looking to give Russian suppliers contracts for A350 work packages as long as their pricing is competitive. Because it must be certified to Airbus standards, most of this work is likely to go to IAZ or VASO, and most contracts are due to be awarded by the end of this year. Russian firms have previously bid for work on EADS’ A400M military transport program but lost out because of price.
EADS is Irkut’s main international strategic partner. Their relationship began with joint efforts in marketing and certification of the Russian Be-200 amphibious aircraft and led to EADS buying a 10-percent stake in Irkut in December 2005. Three months later, it was allowed to appoint a representative to the Russian group’s board.
Last year, Irkut started the series production of three types of component packages for the A320, covering the chassis bays, keel beams and flap devices. This year Airbus will receive up to 40 such packages, a figure set to grow to 240 annually.
MS-21 Is Irkut’s Future
A year ago, the OAK board appointed Irkut as program leader for the proposed MS-21 airliner, which is due to achieve certification in 2015. If this aircraft goes into production, the MS-21could transform the balance of Irkut’s workshare between defense and civil programs, increasing the latter from just 10 percent of its revenues today to as much as 80 percent. Production of the Sukhoi Su-30MK fighter is currently a significant source of income, but demand for this product is expected to drop off steeply in 2012.
OAK intends that the MS-21 program will include international partners, but ongoing discussions with Airbus over collaboration in the field of new-generation narrowbodied airliners has not yielded any agreement. Other domestic program partners on the MS-21 include Yakovlev, Beriev and Sukhoi. Tupolev is set to become involved at a later stage.
The MS-21 family would include three models seating 150, 180 and 210 passengers. The preliminary design is due to be completed this year, followed by a conceptual design in 2009. The aircraft will have a composite wing and tail, but the company has not yet determined whether the fuselage will be all-metal or include composites. Irkut is set to invite tenders for the MS-21 engine selection.
The projected break-even for the MS-21 program is 100 aircraft sales. Apart from Russian carriers and those from the Commonwealth of Independent States, OAK also expects the new airliner to sell well in southeastern and central Asia, eastern and southern Europe, and the Middle East.
The Russian government’s Federal Target Program for this year has allocated approximately $672 million to develop the MS-21, which, overall, is expected to cost $3.5 billion.