Russian intention towards China: "We want such an approach no more"

The 'Saturn's chief says about his great unsutisfaction from Chinese pirate coping politics: 

"Our relations with China often represented the following pattern: we sell a number of engines, whereas the other party uses them for copying. We want such an approach no more. In current talks with China  we are proposing to build such relations where none of the partners would have either possibilities or desires to cheat. It would hardly be possible to cooperate with China in the same manner as with France  under the SaM146 project. We need to look for another ver­sion". 

NPO SATURN:

SEEKING A COMPROMISE

The Saturn Research and Production Association (Russian acronym NPO Saturn), Russia's leading aircraft engine developer, has started building new relations with China, a major foreign buyer of the national aircraft industry's products. Igor Grigoryev, commercial director of NPO Saturn, dwells upon a new policy in rela­tions with the eastern neighbor of Russia.

Vladislav LISTOVSKY

— What are the main domains of NPO Saturn's development?

- To ensure its long-term operation, such a company as NPO Saturn had to think about planning and its prospects. Several years ago we switched from one-year to three-year planning. Of course, we have a relevant

service engaged in long-term market forecasting for the next five to ten years. Our concern is what the United Aircraft Corporation (UAC) will do, how it will meet various challenges, and how we can support the process from the engine production standpoint. I should note that our marketing is more «sophisticated» than that of the suppliers of final products, i.e. aircraft in our case. We have to think about fundamental things: what can our company count on when promoting this or that engine on the market? Which market is to be chosen? Summing up the analysis results, we have realized that first it is necessary to set up a holding company, and sec­ond, we established a diversified company, having done away with our non-core enterprises. That is we clearly see that, for example, we shouldn't deal today with diesel engines, because we shall not be able to success­fully compete in this segment of the market.

Currently, our domains include military and com­mercial aircraft engines, small engines for UAVs, mar­itime engines, and industrial engines intended for elec­tric power and gas transmission applications. In recent years, Saturn has purposefully been reducing the share of its military products. In this context, it is impor­tant to note that the share of military products decreases only in the over­all output. Perhaps in absolute figures it has not decreased at all, however the gross domestic prod­uct of the whole company has grown considerably. And the growth was largely achieved through commercial products, with non-aircraft products making a substantial con­tribution. In other words, our goal is to fill all mar­ket niches accessible to us with competitive prod­ucts. This is a basic pledge of NPO Saturn's stability.

— What niches are still open for NPO Saturn?

- These are military and commercial components of the home market, and export deliveries. Can the military component alone support our company? The answer is unequivocal: no. If one analyzes the quantity of series products that has been and will supposedly be ordered by the Russian Air Force, it becomes clear that we shall not be able to sup­port our activity only with them. We've got a similar sit­uation with our commercial products on the Russian market - the share of domestic airliners equipped with our engines is not large. It is limited by the lack of prospect for growth of the category of the country's citi­zens solvent enough to use air transport services. Our third way is export activities. Given the current nonsim-ple situation in the Russian aircraft industry, the export, too, is rather peculiar. Since we make aircraft engines, only the countries that manufacture aircraft are of inter­est to us. Today such countries, more specifically aircraft companies, are quite scarce. These are primarily Boeing and Airbus and in addition second-tier companies Bombardier and Embraer. These four firms occupy almost the whole airliner market. Further there are third-tier players - Indian HAL (deals mainly with military planes) and Chinese companies. That is why China cannot but be of interest to us.

We know well that China is a very strong competitor and a very solid partner. But we shall not be able to do without the Indian and Chinese markets. Thus, we need to build civilized business and commercial relations with China, transparent for the parties. Both the representa­tives of the Chinese aircraft industry and our company know perfectly what we want from each other. After all, it often happens: an agreement is signed, but the essence of the terms outlined in it does not coincide with what the signatory parties keep in their heads. Our relations with China often represented the following pattern: we sell a number of engines, whereas the other party uses them for copying. We want such an approach no more. In current talks with China  we are proposing to build such relations where none of the partners would have either possibilities or desires to cheat. It would hardly be possible to cooperate with China in the same manner as with France under the SaM146 project. We need to look for another ver­sion. Saturn has proposed a variant of cooperation which is under considera­tion in China. We are looking forward to a reply to our proposals. That is, an optimal form of rela­tions with China hasn't been developed yet.

— What is the intent of your proposal?

— We are aware that we cannot compete with China in industrial pro­duction because the man-hour cost in Russia is substantially higher than in China. And any engine of identical design made in China will be knowing­ly cheaper than the similar product manufactured in Russia. Moreover, when in the 1990s the Russian aircraft industry was in a state of decay, China actively pur­chased equipment, software and all the rest that is need­ed today for mass industrial production. The Chinese can manufacture almost any product. However, there is no an established design school in China, whilst we cannot «sell» our design school because this is our last resource. That is why we offer the Chinese party the following: order engine development from us, we shall jointly manufacture the engine, reserving only key technologies.

— Today the SaM146 engine is NPO Saturn's most advanced commercial product. In your opinion, is there a niche for it on the Chinese market?

— China is developing its «ARJ aircraft of the 21st century» to be supposedly equipped with the CF34 American engine. Although the project has been accord­ed national project status, we think that the Sukhoi SSJ100 airliner powered by the SaM146 engine will also be in demand in China.

— Is China showing interest in Saturn's industrial GTEs?

— By and large, China displays interest in all our development products, including industrial gas-turbine engines. In this area, our contacts are still in the initial phase, but I think they will result in signed contracts. Despite the fact that China has its own engines made under western licenses, we have good prospects for medium- and low-power GTEs for power generation and gas transportation applications.

— Coming back to the military subject, has China shown any interest in heavily upgraded versions of the AL-31F engine?

- NPO Saturn has done a lot of upgrade work on the AL-31F engine. We have developed its several versions surpassing in their performance the products from other Russian enterprises working in the same area. The Chinese customers are showing considerable interest in them. There are plans redevelop special versions around these upgrades for Chinese-developed warplanes.

www.nationaldefense.ru

*6 / 2008       >N а t I о n a I    D E F E N S E <