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28 Dec, 2006 04:42

Russian aviation industry plans to fly higher

Russian aviation industry plans to fly higher

The Russian aviation industry was in the spotlight in 2006. The government of the country took several steps to revive production and improve competition among domestic carriers.

Firstly, these steps include the planned creation of the United Aircraft Construction Corporation, or U.A.C.

The U.A.C. is expected to consolidate major Russian military and civilian aircraft manufacturers, including Sukhoy, Illyushin and Tupolev. Plane-maker MIG is also taking part – it's head will lead the corporation.

Meanwhile, Consultants Deloitte value the new corporation, of which the state owns 75%, at $ US 4.5 BLN.

The U.A.C. is designed to increase the competitiveness of the domestic aircraft industry on the global market.

Furthermore, state-owned Vneshtorgbank bought a 5% stake in the European Aeronautic Defence and Space Company (EADS) in the summer of 2006.

The bank’s president, Andrey Kostin, said they are interested in closer co-operation with the European aircraft manufacturer.

Although the French and German governments have so far given no sign they will accept Russian participation, analysts speculated that Russia may increase its stake in EADS up to 10%.

In addition, low Russian labour costs, along with cheap electricity and metals could provide the incentive, said analysts.

Moreover, the order for 22 A 350 planes for the purposes of the Russian national carrier Aeroflot may also contribute to closer co-operation with EADS which owns Airbus.

Along with the A350, Aeroflot had also ordered 22 Dreamliners from Boeing.

However, the company has so far received no permission from the government to finalise any of the deals.

Analysts said the government may be planning to use the order to win greater influence in EADS and delays are a sign that it has not yet chosen the ally for the United Aircraft Corporation.

Aeroflot may also face tougher competition on the domestic market after the Russian government approved a plan to create a large alternative carrier based on KrasAir (Krasnoyarsk Airlines).

The new Air Union, consolidating 5 regional carriers, will be owned by private shareholders.

By and large, it is clear that the government wants a strategy for the aircraft industry which combines stronger domestic competition and reviving production, while tapping into international technical expertise.