Russia signs $2.5 billion deal for 64 Sukhoi fighters

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Russian government officials during the MAKS air show in Moscow signed a historic order for 64 Sukhoi fighters, raised the possibility of a $470 million cash injection for RSK MiG and sternly warned aerospace executives to not expect further financial bail-outs.

The Russian air force will take delivery of 48 Su-35Ss, 12 Su-27SMs and four Su-30M2s by 2015 under the $2.5 billion order jointly announced on 18 August by Sukhoi and the defence ministry.

The deal marks the most valuable contract ever signed by the air force. It also extends a major change in acquisition policy that started in 2008. Since the post-Cold War period, Russia had ordered no more than six fighters a year, but last year signed a multi-year $1.25 billion contract for 32 Su-34s.

 © Sukhoi

After Algeria last year rejected deliveries of 34 RSK MiG-29SMTs, the Russian air force also agreed to acquire the sum of the lost order for $533 million. That was the first of two bailouts Russia provided for struggling RSK MiG. The company has since been merged with Sukhoi under the United Aircraft umbrella. Russia also supplied $470 million in cash to RSK MiG last year to keep it solvent. An equivalent sum may be required again this year.

"We will also discuss the possibility - and I want to emphasise this - we will discuss the possibility of adding another Rb15 billion [$470 million] to the capital of RSK MiG," Prime Minister Vladimir Putin said on 18 August.

Moscow will also provide $100 million in cash to Sukhoi for "additional capitalisation," Putin says.

In the long term, Sukhoi and RSK MiG also hope to receive order extensions for the Su-35 and MiG-35 beyond 2015 until the fifth-generation PAK-FA fighter is available after 2020.

The PAK-FA "is one of our priorities, work on which must certainly be provided with the necessary priorities", Putin says.

But Putin also delivered a harsh rebuke to Russia's aerospace industry for failing to remain competitive in the international market. United Aircraft is now $3.76 billion in debt, and industry's promises to raise cash by selling non-core assets "have been lost", Putin says.

"I would like to warn you against the illusion that the state will endlessly cover losses, bail out companies or correct mistakes by management," Putin says.