Participants from all over the world have flocked to join the Superjet in unexpected numbers for a Russian aircraft programme. What made them take the risk?
Sukhoi has corralled an unprecedented team of international suppliers to build the systems for the Superjet 100 (SSJ), as well as landed a major Western partner - Alenia Aeronautica - which has given the programme a huge credibility boost as the first flight approaches.
The motivation for these international companies is a mixture of desire to make in-roads into the Russian market and the cold-blooded belief that the aircraft will generate a significant level of sales in the long term. Most of the major Western partners are demonstrating their commitment to the SSJ programme by collaborating in a risk-sharing capacity.
The Alenia tie-up could see the SSJ programme forge a link with Toulouse based ATR
The agreement signed in December between Alenia Aeronautica and Sukhoi - which should see it finalise the acquisition of a 25% stake worth $250 million in Sukhoi Civil Aircraft (SCAC) by the end of next month - is the most significant development so far in the regional
jet programme. Not only does the deal with the 50% shareholder of regional manufacturer ATR give the SSJ a level of international credibility unsurpassed in previous Russian civil programmes, it also provides SCAC with a vehicle to offer potential Western customers genuine worldwide 24h support - something that previous CIS types could only dream of.
SCAC president Victor Subbotin says part of the motivation for the link with Alenia was the need to tie up with an experienced Western company, in order to offer the 24h support the international market expects from a manufacturer. "We could use Alenia's link to the ATR support network," he says.
Alenia's senior vice-president strategies and business development Carlo Logli concurs that having the SSJ linked to the ATR business is "logical", although any direct involvement will depend on the plans of ATR partner EADS, he adds. However, the Alenia link between the two regional programmes looks likely to ensure that the new SSJ sales and support joint venture it is creating with SCAC will be stationed alongside the European manufacturer at its Toulouse headquarters.
The new support company, due to be created by mid-2007, will handle SSJ deliveries and sales outside Russia and the CIS. "The company will also be responsible for worldwide after-sales support - spares, publications, training etc," says Logli.
The SSJ's systems suppliers, which span Europe and the USA, have invested tens of millions of dollars each in their development effort for the regional jet. They believe that the aircraft fills a growing gap in the market. Michel Déchelotte, chief executive of PowerJet, the Safran-Saturn joint venture responsible for the engine, explains that the "progressive erosion and in some cases elimination of the artificial regulatory scope clause means more and more mainstream operators are making inroads into the regional aircraft market".
Déchelotte adds that "all airlines were concerned that the 100-plus seat [regional] airliner market was becoming more and more a de facto monopoly for Embraer...This clearly calls for a new player." He adds that the SSJ is aimed at a niche market where Airbus and Boeing are not present except marginally, and in which "Bombardier is losing ground".
Other suppliers agree: "There doesn't appear to be much competition, with the [Bombardier] CSeries on hold," says Patrick Conner, North American business development manager for Parker's hydraulic systems division - Europe, which is supplying the power generation hydraulics and tubing for distribution for the programme. Even if the CSeries eventually gets the green light, he believes that the SSJ has enough of a head start to be successful.
Regional aircraft manufacturers are facing ever-increasing pressure to help their customers cut costs and boost efficiency: higher fuel prices mean airlines need more efficient regional aircraft. So a new, efficient, large-sized regional jet would make sense wherever it was manufactured, the suppliers argue. And while the fact that the SSJ is a Russian programme might have planted some initial doubts in Western suppliers' minds, it is clear they quickly overcame these and, furthermore, found many compelling reasons specific to Russia to convince them to participate.
"There is some risk in the programme - a new aircraft, a new country - but we really believe Russia is the next market for Liebherr," says André Benhamou, president of Liebherr-Aerospace Toulouse, which is supplying the air management system as a risk-sharing partner for the programme. Sister facility Liebherr Lindenberg is providing the flight-control system.
Macroeconomic factors mean that Western players wishing to diversify from their tried and tested customer bases are keen to get in early on a market that could prove significant.
Liebherr acknowledges that part of its strategy is to "diversify our customer portfolio outside Airbus, Bombardier and Embraer". Benhamou says: "We started to look around some years ago - our strategy was to go in two different directions - to improve our business in the USA and to get new business from emerging countries, like Russia where the aerospace industry was restarting."
Breaking new ground
Many of the Western suppliers on the SSJ programme are cagey about the exact scale of their investments, but they are significant sums. Thales has established a partnership with Sukhoi to develop the software for the systems, and is investing in the programme beyond the $150 million contract it has in place with Sukhoi, of which around $33 million is devoted to simulators. Liebherr says its commitment amounts to "several tens of millions of euros", while Messier-Dowty estimates its investment in a contract valued at around $400 million at a similar level. The work could eventually account for as much of 20% of Messier-Dowty Canada, and 5% of the company's overall revenues.
Parker saw Russia as "a big market with little commercial activity in recent decades". Conner says: "It is catching up. It's a new market, but it is big enough and strategic enough" to justify the risks. "This fits with our long-term strategic growth objectives to continue to be a systems supplier on new projects," Conner adds.
For some of the Superjet's Western contractors, the Russian market offered not only an opportunity for new growth, but also a chance to capitalise on existing relationships. This was certainly the case for members of the Safran group. Snecma's previous relationship with NPO Saturn undoubtedly helped oil the wheels of the PowerJet joint venture, while Messier-Dowty, which supplies the integrated landing-gear system, cites the legacy relationships of its larger siblings as factors in its involvement.
Western companies have been teaming up with Russian partners on the SSJ programme. This gives them the advantage of local knowledge and lower production costs for the aircraft in question, and crucially helps them build local relationships for future work. Liebherr is teamed with Teploobmennik on the air management system, and with PMZ Voskhod on the flight controls. "We were asked to have a Russian partner and this has provided us with a good opportunity to develop our business in Russia to help reduce costs," says Francis Niss, president of Liebherr-Aerospace and managing director of the Lindenberg facility.
Sharing the risk
Teploobmennik has between 20% and 30% of the air management system. "We call it a partnership - they have taken the same risk," adds Benhamou. "They know Russian industry and Sukhoi very well." The importance of having a good relationship in place for any future Russian programmes cannot, of course, be overestimated.
Benhamou says that on Liebherr's previous contracts with Antonov, on the An-74, An-140 and An-148, "we are the only Western supplier, and this was the beginning of our plan to increase business in new and re-emerging countries".
Messier-Dowty has a "full system relationship", designing, developing, testing and fully integrating the steering, actuation and landing gear. The company has an engineering station in place for the joint development phase in Russia, but for the moment is using a Western supply base, comprising manufacturers it has worked with for some time.
In due course Messier-Dowty could assist in the development of a Russian landing gear industry platform, and while talks are already under way, the decision to go ahead could take months, says Luigi Mattia, Messier-Dowty International group vice-president, regional and business aircraft business unit.
For now all work is taking place at the company's existing sites in Canada and Europe. "Obviously they want to develop an industry in Russia - we are also interested in developing that industry," says Mattia. But although this may happen in the future, "the money and the people are not there yet", warns the company's vice-president, Superjet 100 Programme, François Druesne.
"There is market interest to work together to develop an industry platform to benefit Sukhoi and us. Talks are ongoing. We have supplier partners in Russia and we want to have them involved," he says.
Parker, meanwhile, has taken a different approach, establishing itself at the SSJ site with eight employees, although it manufactures all the hardware for the programme at its facilities in the USA and Germany. "The partnership is a risk-sharing one. There are so many interfaces for Parker's products, it is really embedded. Our team there is like a department of Sukhoi."
In the longer term, a Western supplier's presence on the SSJ could open up many more doors in Russia, particularly if, as expected, the reorganisation of Russia's industry under the United Aircraft (OAK) umbrella elevates Sukhoi to a starring role. "If Sukhoi were to make a larger aircraft for the Superjet family we would want to be involved," says Parker's Conner. "We want to be considered by OAK for whatever programme they launch next."
Liebherr's Benhamou says that the company has long viewed Russia as a potential market. "Today part of our investment strategy is to be present as Russia is restructured." Benhamou is confident that Liebherr's work on the SSJ will give it a leg-up on to future programmes: "On the first programme, you always consider that you open a door. If we give a good service, OAK or Sukhoi will think of Liebherr - the door is open now." The possibility of lucrative contracts once OAK is up and running is a factor for Thales, too: "The Superjet reinforces our relationship with Sukhoi and consequently with OAK. It shows clearly our commitment to Russia," says Thales' vice-president general manager commercial aircraft solutions Gil Michielin.
Specifically, he adds: "The military air transport domain is one area of particular interest. And in maritime patrol, we think there might be programmes launched. We would be able to leverage avionics and competencies in tactical systems [on these programmes] - we have ongoing discussions and co-operations with Antonov."
Thales hopes for more work on the Superjet programme itself, beyond the avionics, communication, navigation and surveillance systems and simulators it is already contracted to provide. Michielin says that 2007 will be the year in which it addresses the in-flight entertainment offering for the aircraft.
"We expect to have first discussions with Sukhoi and with airlines before the first flight," Michielin says.
Thales has opened a facility in Moscow "to facilitate relations with Sukhoi - to liaise and facilitate development of the system. Bridging cultures gives the maximum chance of success to the development of the aircraft," he says.
But for all that it is a highly significant market, with massive growth potential, the promise of success in Russia would probably not be enough alone to capture the interest of Western players. Their market analyses also indicated that there would be strong interest from Western operators, which in turn will be boosted by the Western systems shoring up a Russian aircraft programme.
Notwithstanding the confidence of SSJ contractors, the Russian market is still something of an unknown quantity, and it is clear that there is a sense of "safety in numbers" among the Western suppliers and partners with which Sukhoi has signed. Parker's Conner says that there is a level of comfort related to having Western tier one suppliers on the project.
In many cases, Western suppliers have decided to set up facilities or establish a presence in Russia as part of the programme. And those that have not are committing significant resources at home, in some cases expanding their facilities. Liebherr-Aerospace has 15-20 engineers working on the programme in Toulouse, and is looking for more space for expansion thanks to the SSJ and other programmes.
The Western suppliers' aftermarket strategies are less clearly formed. For the moment, Parker plans to support its systems through its German division - which is in fact the signatory of the contract with Sukhoi. Messier-Dowty says it will adopt a similar approach to its existing relationships with Airbus, Boeing and Dassault. "We will be supporting the fleet through the life-cycle, through Messier-Dowty Services," says Mattia. "We don't see the need for a new facility at the moment. We think we can contain it all within our existing footprint."
Liebherr has not yet finalised its aftermarket strategy. "We understand Sukhoi would like to sell its aircraft everywhere we are organised to do the aftermarket anywhere. We have to clarify how it would work in Russia. There is a possibility that we might set up facilities in Russia or use our partner Teploobmennik," says Benhamou.
While there is still uncertainty about exactly how big the SSJ's market will be as the first flight approaches, it could be an increasingly lucrative source of revenues for many years to come for those Western suppliers bold enough to participate.