Sukhoi has spent $1.5 bln to learn from Boeing how to build civil aircraft
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This is a translation of the original article in Russian

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Soon after its creation, “Sukhoi Civil Aircraft” company was involved in consultations with Boeing Corporation about possible cooperation in design and development of a new aircraft, resulted in contact signing on 19 Dec 2002. What for an American corporation would seek a project in Russia? Ill-wishers say: to keep an eye on potential competitor’s program. The biggest version of Sukhoi’s regional plane might have been in competition with the smallest modification of Boeing 737. The Sukhoi’s representatives deny this: Boeing is a multibillion dollar corporation, and international engineering consulting is a part of its everyday business.

Americans started to consult Sukhoi’s engineers on all design development, production set-up, sales and after-sale issues of a new aircraft. The total sum of the contract is not disclosed, but according to Forbes magazine, aviation experts would estimate the price tag in millions of USD.

The group of specialists from Seattle (about 50 people) had participated in defining the key parameters of the new plane. “Boeing has sent us very competent engineers. Before they worked on Boeing 737 family jets, now almost all of them are involved in 787 project (the newest Boeing 787 liner – Forbes). It was such a hardened, proven Boeing’s staff”,- said Alexander Dolotovsky, deputy director for general design department of SCA.

Dolotovsky is 37 years old, he graduated from Moscow Aviation Institute and first was employed by MIG corporation. Then he joined Sukhoi. He works in SCA since the start of the Superjet project. He does not look like an old soviet era engineer in out-of-fashion grey suit with cheap tie. Answering Forbes questions Dolotovsky is swinging on the chair back and forth, picking with obvious difficulty Russian analogues of English aviation terms.

There are a lot of them, guys like Dolotovsky, employed by Sukhoi: average employee is just a little bit over 30 years old. Most of them got their first professional experience working in cooperation with Boeing, the company which also outsourced to Sukhoi some work to develop simple elements and parts for its own jets. In 2005, for example, Sukhoi had received from Boeing several orders $1.2 million worth in total, which made almost 1/3 of all income of the civic unit of Sukhoi for that year.

Under Boeing’s supervision Sukhoi had introduced so-called “gate system”. The system was polished to perfection throughout several generations of Boeing aircrafts, it allows running assessments and executing strict control over project’s progress. After passing every “gate” members of special committee (including Boeing’s representatives) prepared complains and suggestions about work done. “The main goal is not to let defects go further, to more expensive operations” — said Alexander Dolotovsky.

“Make a jet the market will be ready for” — that's the mantra Boeing printed deeply into Sukhoi designers minds. It meant to run constant consultations with airlines representatives, invite as many air companies as possible, regardless any hope (or an absence of a hope) to sell the new aircraft to them.

Already after the first gate a critical decision was made: the new aircraft shall be developed in technological and ideological conjunction with Boeing 737. Consultants from Seattle figured out that Sukhoi Superjet should continue Boeing product line, so airlines, after purchase of SSJ, would rather choose to collaborate with Americans, not with European Airbus.

But after the very first meeting with airlines advisory board, which took place in Paris in 2003, potential buyers heavily criticized the cockpit designed after Boeing 737, the plane which first modification was developed in 1960s. The cockpit, even with up-to-date electronics installed, was no match to modern ergonomic and pilot's comfort requirements.

After second “gate” with airlines (6 month later in Paris) potential customers even more firmly requested cockpit design to be based on modern A320, developed in 1990s. Boeing consultants stepped back and a steering control in the future Russian airliner was replaced by a joystick-like handle, placed to the side of a pilot's seat and intended to be controlled by one hand.

Sukhoi Civil Aircraft had approached the third “gate” with approved aircraft’s concept, precise specifications and clear requirements toward part suppliers. At the fourth “gate” an unique for the Russian aviation industry thing should have been done: nomination of key part suppliers, filtered out through a tender system. In Soviet Union a competition between suppliers was an exception, but Boeing demanded: suppliers should compete to each other!

At least two companies took part in every tender ran by SCA for each “supply point”. How successfully Russian manufacturers did perform? Only two had made their way to the SCA supplier list: “Teploobmennik” company from Nizhny Novgorod (air conditioning systems for passenger cabin) and Ulyanovsk “KB Priborostroeniya” (“Data concentrator EIU-100” device). Well established Russian suppliers could not pass through the tender selection. Chassis are made by French Messier-Dowty, but not by Nizny Novgorod “Hydromash”, the pilot seats are supplied by Brittish IPECO, not by “Aviatech” from Kirov. SCA had demanded not only low prices but guaranty of on-time delivery under agreed contract terms. “I do not understand all those talks about too small number of Russian components” — declared later on Mr. Pogosyan in interview with “Kommersant” newspaper, — “We had not taken decisions to install stools instead of chairs in the cabin only because stools are made in home country, but chairs are not”. Finally foreign parts make up to 80% of aircraft production cost. What’s made in Russia? Apart from those two systems mentioned above, it is the hull of the aircraft and the engine. The engine is also half made up of imported parts although. It is manufactured in Rybinsk by Joint venture of NPO “Saturn” and French “Snekma”.

Brazilian Competitor

The main SSJ’s competitor is Brazilian made Embraer EMB-190 with seat capacity of 98 passengers. The first planes were handled over to the airlines in 2008. Can the SCA’s product compete with this aircraft? In some areas for sure it can! A passenger of SSJ does not fill being trapped in an undersized cabin. But exactly this impression most of modern regional planes would make. SSJ from the inside is a common full size airplane, it’s cabin is 70 cm wider than Embrier’s EMB-190. “Big overhead luggage compartments can accommodate any passengers clothing – from light summer overcoat to heavy winter fur coat” — SSJ promotional leaflet states.

While designing the aircraft, the SCA had demanded from its partners clear technical terms for post-sale service. The SCA had thoroughly grouped post-sale maintenance services, achieving longer Mean Time Between Service, which in turn resulted in lower service cost comparing to the Brazilian competitor. Another trump card of Sukhoi is a foreign partner, taking care of SSJ’s launch on overseas markets. This work is done by Italian concern Alenia. In 2009 Italians entered the partnership, buying 25% shares of SCA. Their role in the project is aircraft sales and customer post-sale support. For this purpose a special joint venture “SuperJet International Alenia” with 51% held by Alenia and 49% held by the SCA was created. The Italians have a shear experience in this business: in 1990s Alenia had launched regional turbo prop planes ATR, made by European EADS.

For the first glance, the new aircraft is more comfortable for passengers and cheaper in service, comparing to its competitors. And with a price tag of $28 mln it costs at least 10% less than of foreign “classmates”. But there is a problem: so far all of these are only Sukhoi’s statements.

“Reality will either confirm or deny those statements” – said Oleg Panteleev, the head of analytical department of “Aviaport” agency. One should not go far away to prove that: since the beginning of the project Sukhoi’s airliner had gained 10% in weight, or roughly 3 tons. More weight means less fuel efficiency, i.e. the aircraft will fly less distance using the same amount of fuel. “Our aircraft anyway is half a ton lighter than Embraer (It does make a difference: the airport duties depend on the aircraft’s weight), and fuel efficiency is 6-7% higher due to better aerodynamics”, — said Alexander Dolotovsky.

Weight increase is not the only problem. Design development fell behind the schedule — first planes should have been delivered to the buyers in 2008, the current delay is more than 2 years now.

An Order From Armenia

Let’s take a look on the situation from a customer’s point of view. The first SSJ was delivered to Armavia airline on April, 19th, as per plan. SSJ made its maiden flight from Erevan to Moscow on April, 21st. Although Armavia is a national flag carrier, it’s rather a small company on Russian scale. Last year Armavia had carried 850000 passengers. Major flights are from Erevan to big Russian cities, first of all Moscow. Why Michael Bagdasarov needs Sukhoi SuperJet? Answer hides in the company’s fleet. It has 9 wide body jets: 6 airplanes of A320 family and 3 Boeing 737 with seat capacity about 150 passengers. Additionally it holds 3 CRJ-100s made by Bombardier with 50 seats each. The maximum revenue is achieved with full passenger load of the aircraft. Now, if a number of passengers is more than CRJ-100 can take, Mr. Bagdasarov has to use bigger Boeing or Airbus, which would fly with empty seats, burning kerosene for nothing and reducing revenue. Sukhoi’s liners should balance the Armavia’s fleet better. Depending on the number of tickets sold the company will choose for flight a plane with suitable passenger capacity. Had Mr. Bagdasarov considered Embraer as an alternative to SSJ? “Yes, of course” — said the owner of Armavia. But decision was taken in favour of Sukhoi: wide body hull, Airbus cockpit (almost no need to teach again the pilots), post-sale service by Alenia. Apart from that there is a discount for approximately 20% on price book of $28.3 mln (Embraer book price is $32,35 mln) and also credit line from state owned Vneshekonombank.

In spring of 2009 Sergey Ivanov (vice-premier of Russian government, in charge of national air industry) announced that Vneshprombank would credit airlines for $250 mln to buy SSJ planes. The bank’s child company would purchase the planes and lease them to the airlines with option to buy them off later on.

According to the plan, Russian state company Aeroflot should have been the head customer, with solid contract to purchase 40 aircraft. Russian flag carrier wants to replace obsolete Tu-134 planes with SSJs. “Aeroflot needs such an aircraft, we look forward for first delivery” — that’s the official statement of Russia #1 carrier. But reality is much complicated than that: the project is delayed for 2 years; weigh increased for 3 tons comparing to pre-production estimates. Aeroflot is not happy.

This unhappiness was on display several times. Last October Shamil Kurmashov, Aeroflot’s deputy director for finance and investment, has said, “Sukhoi’s planes are out of customer’s specifications” and “need to be finished off”. According to him an additional delay in production would cause financial penalties from Aeroflot’s side. Later on Aeroflot denounced the statement as Mr. Kurmashov’s personal point of view, not reflecting the official stand of the company. The penalty issue was not publicly discussed ever since, but in SCA’s balance sheet for year 2009 it says: in case of airplane delivery delay the company could be penalized for as much as $1.5 mln for every plane delayed. Therefore total penalties for Aeroflot delayed aircraft would mount up to $60 mln.

How To Return The Money Invested

Total investment for the period 2001-2010 is $1.5 bln – said SCA’s spokeswoman Olga Kayukova. Direct investment by Russian government is $400 mln, the money were part of a special federal development program. The SCA has invested into the project roughly $70 mln of its own money, Alenia has contributed $180 mln (and received the blocking package of SCA shares for that), $700 mlns are credit lines from Russian (mainly state owned) banks, Italian Intesa and proceedings from bonds sales on financial markets. Credits must be paid back, investments should return profits. To return the money invested into SSJ project, the company should sell about 350 aircraft. Is it real?

Today Sukhoi officially holds orders for 170 units. But only 2 of these orders are solid indeed: Aeroflot’s and Armavia’s (42 units in total)- said Konstantin Makienko, expert from Center for analysis of strategies and technologies. What about other orders? Hard to say, many of them come from empty shell companies with no airplanes in active service or dwarf airlines with couple of aircraft. Such orders easily could be cancelled or converted from “solid” into “protocol of intentions”. The world market capacity for new regional jets to the year 2029 is estimated to be around 1920 units (Boeing’s estimation). Out of that number, 200 units with combined price of $6 bln could be sold in Russia and former Soviet states.

To promote its product beyond post-Soviet states, SCA will have to enter dangerous waters of high competition markets. China is about to complete operational tests of SSJ’s classmate ARJ-21, a new Chinese regional jet. This aircraft for sure will be cheaper than Sukhoi’s. Mitsubishi Heavy Industries has scheduled for 2014 introduction of its own regional jet made of composite materials. This aircraft with high probability will have better flying characteristics.

Even if SCA’s first step is troublesome, it’s still step in right direction. Embraer had had its failures too – said Konstantin Makienko — Now Embraer is a number 3 world producer of civil aircraft after Boeing and Airbus. And who now remembers its first mishaps?

06 Mar 2014 11:27

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