Brazilian fighter order could kill Russian RJ

 - October 8, 2007, 6:21 AM

Ask someone in the Russian aviation community about the Russian Regional Jet (RRJ) program and you’ll likely receive a variety of reactions. Except for those enterprises that have a vested interest in the project, responses range from the skeptical to the derisive.

Officially a joint effort between Sukhoi Civil Aircraft, Yakovlev, Ilyushin and Boeing, the RRJ has also attracted as major partners France’s Snecma and Russian aero-engine builder NPO Saturn. Boeing, which has contributed to a number of projects in Russia, does not have a major hand in the design, but rather fills the roles of international marketing and after-sales support outside Russia (India and Malaysia allegedly stand as two near-term customers). The partners also expect Boeing to support the certification of the aircraft to U.S. and European commercial airline standards.

Although the project might sound like a worthwhile effort, problems abound that could make it difficult to continue much longer.

During the recent Moscow Aeroengine 2004 exposition, a senior Russian aviation industry enterprise director said “the RRJ is simply not a realistic effort based on the amount of time it would take to put these aircraft into production and the expense of doing so. It is also far behind the efforts of other design bureaus working on similar-sized aircraft. We already have several flying prototypes of the Tu-334 being produced jointly by RSK-MiG here in Russia and Aviant in Kiev, Ukraine. Additionally, the Ukrainians have the Antonov An-148, which is almost ready to make its first flight. Given the nearer-term status of these programs, it is hard to see how the RRJ could be justified.”

Further, in the eyes of a number of Russian industry officials, those involved never intended the RRJ to become a real aircraft, but rather serve another agenda.
And Now an ‘RBJ’ Business Jet Russian aviation industry officials and observers derisively call it the “PRJ,” which–depending again on the critic–either means “Pogosyan Regional Jet,” after Sukhoi Commercial Aircraft general director Mikhail Pogosyan, or the “Public Relations Jet.”

Many claim the entire program represents nothing more than an image-building campaign for Pogosyan, as well as a method for siphoning resources from the company’s sales of Sukhoi Su-27/30 fighter aircraft. Pogosyan threw another acronym/ambition in the ring at the Berlin Air Show last month when he announced plans to offer a business-jet version called the RBJ.

The label of “Public Relations Jet” comes from those who say the program merely embodies an effort by Boeing to try to secure special status within the Russian market. The Russian government currently imposes a 20-percent import tax on all Boeing aircraft–new or used– sold or leased to Russian aircraft operators. This fee, in addition to the 20-percent VAT charged to buyers, lifts the cost of even a second-hand 737 beyond the means of most Russian airlines.

Boeing, so the argument goes, wants to use the RRJ program and its position as a partner with Russian aerospace as a means to secure a waiver of customs fees. If so, Boeing could sell its aircraft throughout Russia at a substantially lower price than those produced by its European rival, Airbus.

But the real difficulty with the RRJ at the moment involves its effect on Sukhoi’s core multi-billion-dollar business of exporting fighter aircraft.

Before suffering its most recent procurement suspension, Brazil’s air force (FAB) had reached the final days of deciding which company would win the F-X BR contract– Brazil’s next-generation fighter. Originally launched several years ago, this $700 million program would replace the country’s older-generation Mirage and F-5 fighters, and potentially evolve into a requirement for between 50 and 100 airplanes.
France’s Dassault and Brazil’s Embraer, which proposed licensed assembly of the Mirage 2000BR

in Brazil, and a local-build program for the Sukhoi Su-35–planned by a team from Sukhoi, Salyut and the Komsomolsk-upon-Amur Aircraft Production Association (Knaapo) with Brazil’s Avibras, emerged as the two final contenders.

However, with the election of socialist president Luis Inacio Lula da Silva in Brazil, the program fell into abeyance more than a year ago. Lula was determined to shut down the military procurement and focus on humanitarian initiatives, including a promise to establish new programs to fight hunger.

But when the government approved the restart of the procurement process after the air force convinced the powers that be of its dire need for new equipment, Lula faced a new problem: the Russian bid offers many more technical benefits to the air force and Brazilian industry than the Dassault-Embraer partnership, but it provides less in the way of international cooperation with European industry. Given Embraer’s status as Brazil’s premier industrial and high-tech entity and its importance to the nation’s image, it is hard for the Brazilian Government to select the Su-35, but the Russians have now upped the stakes to the point where they might have an offer that Lula cannot refuse.

$3 Billion Package

Aside from a sizeable package of industrial offsets, cooperation and technology transfer, Russia has also offered Brazil a huge economic package. It includes dropping tariffs on the export of Brazilian poultry and other products to Russia. The total value of all purchases Russia has promised over the next several years comes to almost $3 billion. If it can be said that the U.S. essentially bought the victory for the
F-16 in the recent decision in Poland with loan guarantees and offset packages, Russia is proving no less aggressive in trying to put the lock on an Su-35 sale in Brazil.

Other sweeteners might involve building a production line in Brazil for Vympel’s air-to-air missile for use in Latin American fighters, and aid for the development of
a Brazilian space launch program and nuclear-powered submarines. But the most intriguing offset proposal might very well involve Embraer itself.

Having the RRJ in Sukhoi’s stable of products has created a political hot potato for the Russians because it would compete with the Embraer 170/190 line. Brazilian politicians have objected to buying the Su-35 on the grounds that it would essentially mean using Brazilian funds to support a competitor for Embraer. A line of aircraft produced in a nation such as Russia with low labor costs and plugged into Boeing’s international sales and support network could theoretically offer a serious threat to Embraer commercial aircraft in the international market.

Brazilian Su-35s, Russian ERJs

As a result, Rosoboronexport has entered discussions with Embraer to join the team of Sukhoi and Avibras in the event the Su-35 wins the tender. The agency would assign Embraer the task of facilitating some of the air force’s technology-transfer requirements. Reports out of both Brazil and Russia have also indicated that in exchange for the Su-35 purchase, Sukhoi will close the RRJ program and form a partnership with Embraer to license-produce the Brazilian firm’s civilian aircraft
in Russia, displacing the RRJ in fulfilling Russia’s need for new-generation regional aircraft. Sukhoi executives reportedly did not suggest the plan, but the Russian State Committee for Military-Technical Cooperation might force it on them.

All told, the F-X BR program shows that the fortunes of civil and military aircraft makers have become even more intertwined than before. Both types of sales are now becoming not so much decisions based on which aircraft best fulfills a customer requirement, but instead the aircraft itself represents the centerpiece of a much larger industrial base and foreign-trade package.

Not only in Brazil, politicians and aerospace business leaders the world around might find themselves asking the “chicken or the egg” question: do aerospace enterprises exist to provide a method for technological and trade benefits to the national economy, or are trade policies and technology-transfer decisions made to support an indigenous aerospace firm’s business bas