Russian Helicopters set to sign new contracts

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Russian Helicopters is close to signing major new contracts with the country's defence ministry and major civil operators and expects to make details public at Le Bourget this week.

The state-owned holding company, which incorporates the Mil and Kamov design bureaux and Kazan Helicopters, is in the final stages of concluding the deals, says chief executive Dmitry Petrov.

The civil contracts will involve two companies heavily involved in supporting Russia's oil and gas industry: UTAir, already the world's largest operator of Russian-built helicopters, and Gazpromavia.

Both will be taking variants of the Mi-171 medium transport helicopter - UTAir has recently accepted delivery of the final examples from a previous batch of 40. Gazpromavia will also acquire further examples of the Kamov Ka-226 light utility machine.

"We're kind of superstitious about talking of numbers before the contract is signed, but it will be several dozen," says Petrov.

While unable to give details of the military contracts before contract signature, he says they will be long-term agreements involving deliveries up to the 2018-20 period. They will be part of the major defence procurement programme that is planned to renovate the ageing equipment inventories of Russia's armed forces.

This procurement programme is due to see Russia spending Rb20 trillion (around $700 billion) by 2020, with expenditure rising sharply from Rb574 billion this year to Rb1.16 trillion in 2013.

ka-32a11bc firefighting
 Kamov, designer of Ka-32A firefighting aircraft, is now part of Russian Helicopters

Among planned equipment purchases for the military are more than 1,000 helicopters of 21 types. "Basically the whole current and prospective model range," says Petrov.

These domestic contracts are part of an encouraging sales outlook for Russian Helicopters, which has been one of the bright spots in the Russian aerospace sector in recent years. Deliveries have risen steadily, from a low point of 85 in 2004 to 214 in 2010, 262 this year and "around 300, maybe more", in 2012. Growth is likely to continue, but at a more moderate rate, in the next few years.

Petrov says that both internal estimates and external observers predict annual production in the 450-500 range by 2020.

While part of this increase will be driven by the growth in domestic defence spending, Russian Helicopters also foresees increased exports to Russia's traditional markets in developing nations, where the helicopters' qualities of ruggedness and keen pricing are appreciated. Future models will retain this structural toughness and ability to operate in austere conditions, says Petrov.

The split between civil and military production is roughly 50:50 and this balance is likely to continue, although with minor annual fluctuations, says Petrov.

He picks out the Asia-Pacific region and in particular Russia's traditional partners, China and India, as areas for future growth. Russian Helicopters' goal is to have a market share of at least 15% globally and up to 90% domestically by 2020.

India, in particular, remains a major market, with Russian Helicopters' machines shortlisted in several major military competitions that are due to be decided later this year.

The largest is for 197 light utility helicopters, for which the Kamov Ka-226T, powered by Turbomeca Arrius 2G1 powerplants, is competing against the Eurocopter AS550C3 Fennec to replace elderly HAL Chetaks and Cheetahs for the Indian air force and army.

mi-38 - 1 flight 
Mil, now part of Russian Helicopters, includes the Mi-38 transport helicopter in its portfolio

Meanwhile the Mil Mi-26T2 is shortlisted with the Boeing CH-47F Chinook for an order for 15 heavy lift helicopters, and the Mi-28NE combat helicopter is duelling with the Boeing AH-64D Apache for a contract for 22 attack machines.

Russian Helicopters has also tendered to upgrade 15 Indian navy Kamov Ka-28 and 31s that serve in the anti-submarine and airborne early warning roles respectively, plus 108 Mi-17s for the Indian air force, says Petrov. "As you can guess, we have a major chance there as we are the OEM [original equipment manufacturer], but we do have certain foreign partners, such as Finmeccanica in respect of the navy fleet."

However, while pursuing new contracts Russian Helicopters is also seeking to change the nature of its revenue stream by targeting a major increase in aftermarket income over the coming decade.

Revenue from this market sector is increasing steadily as the company expands its network of service centres internationally to maintain and repair its worldwide fleet of some 8,500 machines.

"Even three years ago our percentage of after-sales support earnings within total revenue was only 6%," says Petrov. "Our 2010 results show this had increased to 21% and a conservative forecast is that by 2020 it will have reached 35-40% of revenue, which will correspond to the best practice of our competitors."

As part of this process, Russian Helicopters is steadily opening new service centres worldwide to add to the 83 already operating. Sites in China and Brazil are expected to start operating this year, as is a joint venture based in Sharjah in the United Arab Emirates that will cater for Russian-made helicopters operated by coalition forces in Iraq and throughout the Middle East. The actual maintenance will probably be undertaken at a service centre at Kabul airport or out in the field in Afghanistan.

As well as opening service centres itself, Russian Helicopters has embarked on a process of certificating and modernising third-party service centres to obtain greater value from the aftermarket cycle.

As part of this process it is agreeing framework agreements with these third-party service centres to increase the share of spare parts sourced directly from Russian Helicopters and its suppliers. It is also offering integrated full-cycle service packages to operators.

Further co-operation with foreign partners is under way closer to home at Tomilino, near Moscow, where the HeliVert joint venture with AgustaWestland is about to start work on assembling its first AW139 medium twins. A formal opening is planned for August.

When work on the final assembly plant began a year ago, HeliVert announced that five AW139s would be produced in 2011, with the plant having a projected capacity of more than 20 aircraft a year.

However, after fine-tuning of equipment and staff training, this year will see "just one or two" aircraft produced and maximum capacity per year will be 15, says Petrov. This figure could rise if the premises were expanded "but so far we don't deem it necessary".

The AW139 will fill a gap in Russian Helicopters' portfolio, with most of the Russian-assembled examples being completed in VVIP configuration for company presidents and chief executives or senior politicians, such as the heads of certain Russian provinces.

Tomilino will also be the site of a new research and development complex that will combine the resources of the Kamov and Mil design bureaux.

Further international co-operation was announced in April when Russian Helicopters and Turbomeca of France signed a contract for the supply of 308 Ardiden 3G turboshaft engines to power an updated version of the Kamov Ka-62 6.5t helicopter, in preference to the Russian Saturn RD-600 powerplant that has been reported as having fuel consumption and gearbox problems.

Petrov admits that it is always useful to have different powerplants competing for a place on an airframe, as competition improves products. While the Ka-62 will be produced with the French turbine, Petrov says: "We never exclude Saturn. If there's market demand and Saturn catches up with their engine we'll be ready to offer that second option."

The Ka-62 remains on schedule for certification by the end of 2014, with production launch the following year, he says.

In other market sectors, the company is re-entering the light helicopter arena with the upgraded 1t MTOW-class Mi-34C1. It will have an improved Voronezh M9FV engine and electric start-up, plus upgraded swashplate and avionics. Importantly for a rotary-wing aircraft that is designed to have aerobatic capability, it will now have a Goodrich-produced hydraulic-assisted control system. "Previously you had to apply 30-35kg [66-77lb] of force to the stick to get the angle of attack you wanted. Now, you can literally control it with one finger, like a Robinson."

He believes demand for the new model will come from non-traditional markets, notably the US, where many private pilots fly helicopters for sport.

However despite the generally favourable business outlook, not everything has gone Russian Helicopters' way recently. The company called off a long-expected Initial Public Offering last month. It had planned to use the IPO to raise $500 million through selling shares on the London and Moscow stock exchanges. The money was to be used to reduce debt and buy shares in its subsidiaries that it does not already own.

Petrov says there were several interconnected reasons for the decision to postpone the move, centred on the poor state of the market.

Since the start of 2011, 13 Russian companies had tried to launch IPOs and more than half of them had failed because of insufficient demand, he says. Even those that had gone ahead had seen their share value dip below the offer price shortly after their launch.

Additionally, this spring had seen stock markets dip sharply. Although Russian Helicopters had conducted a major investors' roadshow that had met with generally positive reactions, this had been outweighed by overall negative marketplace sentiment.

Rather than lower the price of its shares, the decision was taken to postpone the IPO, said Petrov. There is no firm timetable to relaunch the offering, although next year is most likely.