Tag Archives: Almaz-Antey

World-Class Competitors

Defense News has posted its annual list of the world’s top 100 defense companies for 2012.

The same seven Russian firms appear on the list.  But against the backdrop of a declining international defense market, the performance of Russian companies last year is interesting.

They did fairly well, except for airplane makers.

Almaz-Antey’s reported defense revenue rebounded strongly in 2012 – by 62 percent — to make it 14 overall.  It moved up from 21 last year.

Helicopters of Russia’s revenue jumped 32 percent to put it at 24.  It was 44 last year.

Sukhoy’s revenue was down 8 percent.  But down less than others.  With the market declining,  it came in 43rd, up from 52nd last year.

United Engine-building’s revenue increased nearly 50 percent to make it number 49, up from 55.

Irkut’s revenue and position declined, more than 18 percent to make it 62 versus 53 a year ago.

RTI Sistemy reported a 12 percent gain to be 80th instead of 100th last year.

RSK MiG was down 17 percent and came in at 93rd.

Here are the posts on 2011 and 2010.

What’s It Cost?

S-400

S-400

A reader recently asked:

What’s the cost of one division of the S-400 for Russia and for foreign customers?

Let’s call it a battalion (дивизион).  We’ll start with exports (for which there is actually data).  And we proceed from what was paid for the S-300.

Russia’s planned sale of the S-300PMU1 to Iran reportedly involved the transfer of five “battalion sets” for $800 million.  Some sources said as much as $1-1.2 billion.   

Let’s guess the “battalion set” has three firing batteries, with two launchers per, for a total of 30 TELs, 120+ missiles, and all associated radars, fire control systems, and vehicles.

If $800 million is accurate, the price for one battalion was $160 million.  The price for one S-400 system, four missiles on a TEL, was roughly $27 million.

This isn’t unlike what the Chinese paid for the S-300 in the 1990s and 2000s.  According to Sinodefence.com, they bought battalions for between $25 and $60 million at different times under different contracts.

That done, we make the leap from the S-300 price to the S-400 price.

A couple years ago, Vedomosti drew the scarcely precise conclusion that the price of the S-400 will double the S-300’s price (and the S-500 double the S-400’s). 

So perhaps a “battalion set” or a battalion of the S-400 will go for $320 million.  That would be one full-up launch vehicle for $40-50 million.

The only other shred of information is the widely-reported Financial Times story saying, if the Russians added the S-400 to a $2 billion arms deal with Saudi Arabia, the price of the sale would climb to $7 billion.  But lots of Russian reports say Moscow won’t be selling the S-400 abroad soon.  The military obviously hopes that’s true, so it can get first.

But not every customer is Iranian, not every one will have to pay a premium price, and not every customer is foreign.

Which brings the trickier question of what Russia’s Defense Ministry has to pay.  It’s simply impossible to guess.

Certainly a lot less than buyers abroad.  The military’s bought some S-400 systems so there is a going price.  OAO Concern PVO Almaz-Antey’s costs are a big question as is the level of profit the government is willing to tolerate.  

The government owns Almaz-Antey, so one part of government is selling to another.  It’s a prime example of angst over GOZ “price formation” in recent years.  There was a similar big-ticket dustup over submarine prices with Sevmash.  It’s something of a Mexican standoff.  The buyer doesn’t have other supplier alternatives.  And the seller may not be allowed to sell elsewhere. 

The Defense Ministry, the government don’t want to pay a lot and have the power to refuse and yet still receive goods.  The question is how many.  That’s ECON 101, friends.

If those buyers set their price below equilibrium, Almaz-Antey will provide a lower than desired quantity more slowly than the buyers want.   And Almaz might have other buyers as an option, an advantage Sevmash lacks.  So “price formation” for the S-400 is all about agreement on Almaz’s costs and an acceptable level of profit.  That agreement is apparently not smoothly worked out yet.

Those Air Defense Missile Factories

S-300 Launch Canister? (photo: Izvestiya)

S-300 Launch Canister? (photo: Izvestiya)

OK, a lot gets under the radar . . . hadn’t noticed interesting reports since August by Izvestiya’s Aleksey Mikhaylov.

Sue me.

The latest is Mikhaylov’s informative update on two Almaz-Antey factories planned to crank out missiles for the S-400 Triumf and S-500 Prometey.

His OPK source says:

  • By 2014, large factories in Kirov and Nizhniy Novgorod are supposed to manufacture hypersonic 77N6-N and 77N6-N1 missiles for the S-400 and S-500.
  • The missiles will have inert, kinetic kill warheads, and supposedly be capable of intercepting ballistic targets at 7 km/s.
  • The Kirov factory will cost 41.6 billion rubles, the one in Nizhniy 39.5 (81.1  together).  Almaz will get a credit of 25 billion from VEB; the Defense Ministry will invest 35 billion.  One wonders where the balance comes from, and what the terms of this three-way partnership are.

Almaz greatly needs a new production base to field missiles for its SAM launchers.  It was planned in 2008, but the financial crisis prevented it.  The military doesn’t want to repeat the S-400 experience.  It remains armed with older, shorter-range 48N6 and 9M96 missiles.  Since 2007 only seven battalions (3 and 1/2 “regimental sets”) of the S-400 (out of 56 planned) have been fielded.

New missile production should coincide with serial production of the S-500 system (not later than 2014).  It remains under development.  However, Mikhaylov reports rumored sightings of  Prometey prototypes at this or that test range.

Over time, various officers and officials have claimed new, long-range missiles for the S-400 would be fielded in 2013, 2014, or 2015.

By way of conclusion, Mikhaylov turns to independent defense analyst Aleksandr Konovalov to comment:

“The country’s leadership looks at the defense sector like a Coke machine.  Put money in and get a bottle.  Nothing is that simple with the domestic OPK, and investing a lot of money doesn’t guarantee getting production precisely on time.  And discussion about the S-500 is questionable, it’s possible it doesn’t even exist in drawings.”

Update on World-Class Competitors

By way of follow-up on a previous post, Defense News’ list of the top 100 defense industrial producers for 2011 is out.  No change in Russian companies except for some changes of position on the list.

Sukhoy, Helicopters of Russia, and RTI moved up the list with increased revenue over 2010.  Almaz-Antey, Irkut, and United Engine-building slipped down.  RSK MiG hasn’t reported 2011 data.

Here’s last year’s post.

Makarov Reports to Public Chamber

Makarov Briefs the Public Chamber

According to Mil.ru, General Staff Chief, Army General Nikolay Makarov reported to the Public Chamber today as part of its hearings on “The New Profile of the Russian Army:  Results, Problems, Prospects.”  Here’s a sampling of what he discussed.

According to ITAR-TASS, Makarov said there are 186,400 contract servicemen today, and there will be 425,000 in 2016.  Recruiters will work throughout Russia starting next year.  Prospective contractees will train for three months before signing contracts.  Minimum pay will be 23,000 rubles.  Makarov said 2012 will be a test year, and from 2013, 50,000 contractees will be signed up each year.

RIA Novosti printed Makarov’s stark assessment of Russia’s conscript manpower.  The General Staff Chief said, of all men liable to conscription, only 11.7 percent can be called up, and 60 percent of them are excluded for health reasons.  So, he concludes:

“Therefore we are practically faced with the fact that there is almost no one to callup into the Armed Forces.”

He said Russia’s current mobilization reserve consists of 700,000 ex-conscripts. 

Makarov suggested increasing the prestige of military service through a veteran’s preference system.  Former soldiers and officers would enjoy a priority in hiring for government service, according to RIA Novosti.

ITAR-TASS quoted Makarov on cuts in military command and control organs.  He indicated they’ve been cut by a factor of four — from 51,000 to 13,435 personnel, and this process continues.  One-third of C2 organs were disbanded, and the rest reduced in size several times. 

He indicated that, when the Defense Ministry’s central apparatus numbered 51,000, it occupied more than 20 buildings in Moscow.  The apparat is now in a single building.  Other buildings were sold off.  But Makarov assured his audience the effectiveness of C2 hasn’t declined because of the reductions.

Regarding the new pay system for officers, RIA Novosti wrote that Makarov said higher pay basically implements the old Order No. 400 on premium pay, but officers will still have the chance to receive extra “stimulus” pay under the new system.

ITAR-TASS printed Makarov’s figures on efforts to get rid of old ammunition.  According to the General Staff Chief, at the start of the year, Russia had 119.5 million tons of old munitions to destroy, but now only 7 million.  Less than one percent could be dismantled; the vast majority had to be blown up.  Makarov indicated the number of ammunition storage sites will drop from 161 at present to about 30.

Makarov defended his past criticism of domestic weapons and equipment by giving more examples where foreign systems are superior to Russian ones (i.e. tanks, MLRS, satellites), according to ITAR-TASS.  The general argued for increasing the range and service life of systems as well as providing better protection for soldiers operating them.

RIA Novosti reported Makarov intends to continue pushing for lower prices on arms and equipment the military’s buying.  He intimated there will be a “specialized department” for negotiating with producers.  He claimed shipbuilding contracts with OSK were concluded on the Defense Ministry’s terms.  He added that the military has given Almaz-Antey two years to build two new factories to produce the S-500, according to RIA Novosti.

ITAR-TASS relayed Makarov’s remarks on Russia’s airfields.  Makarov indicated Russia has cut from 357 military airfields down to 26 that he describes as meeting world standards.  Russia has eight air bases. 

He said pilot flight hours are at 90 per year.  He said it’s planned to increase them to 130 next year, and then to 220 at some point.

ITAR-TASS and RIA Novosti carried the General Staff Chief’s comments about threats on Russia’s borders: 

“Under certain conditions, local and regional conflicts can grow into mass ones with the employment of nuclear weapons.”

“The conflict which could occur in connection with the withdrawal of American troops [from Afghanistan] could lead to a local, regional and even large-scale one.  And we have to be ready for it.”

Passion for the S-300PS

Friday’s Nezavisimoye voyennoye obozreniye editorial assures readers the end of S-300PS production — combined with a lack of contracts for the S-400 — won’t bring the apocalypse or, at least, a threat to Russia’s administrative and industrial heartland.

Like others, NVO is wrestling with the meaning of former Almaz-Antey General Director Igor Ashurbeyli’s most recent words.

Despite the sturm und drang over the S-300’s demise elsewhere in the media, NVO takes the rational tack.  There’s nothing new in Ashurbeyli’s statements.  Everything’s normal, it says.  Almaz-Antey could have upgraded the S-300P Favorit forever, but proposed S-500 development instead.  It’s natural and sensible to draw S-300 production down to a close.

And, after all, the S-400 is entering service, and the Vityaz and S-500 are in development.  The medium-range Vityaz will replace the S-300PS.  Morfey’s in development for short-range protection of the most important targets.  And Ashurbeyli says “it’s proposed” that the S-500 will be complete in 2015.

Here, NVO’s editors shift to a less optimistic, perhaps a more realistic tack:

“It’s true, we all know that in our country it’s always a great distance from plans to their fulfillment.  In that great distance, sometimes not just ruts and potholes arise, but even chasms.  Here not everything with full-blooded use of the S-400 system is clear and obvious.  According to the reports of both Ashurbeyli and the VVS CINC General Zelin, there are big problems with the long-range missile, and also at Moscow factory “Avangard,” where this serial production goes on, according to media accounts, there are no orders for it.  It could be because it’s not in shape.  And the “400,” on which great hopes rest today, as a transitional system from the S-300PS to Vityaz and the S-500, doesn’t justify these expectations?  It isn’t excluded that it’s for exactly this reason that the Defense Ministry no longer wants to order it?  Why spend money and buy something that doesn’t meet the tactical-technical requirements which the customers laid down for the system?  Here the generals wouldn’t lack common sense.”

But, says NVO, they could go forward with the S-400’s short- and medium-range missiles, couldn’t they?  Delays in the S-400 contract threaten to cause failures in establishing the country’s defenses.

With a two-year production cycle, and no contracts in 2011, it’s naive to expect the appearance of new systems in 2013, according to NVO’s editors.  What’s more, there’s no absolute certainty that Vityaz and Morfey will succeed in this time frame, or that some kind of real basis for developing the S-500 will be laid.

NVO concludes:

“And so here passions for the “300” are understandable.  But it’s only desired that they shouldn’t take on an alarmist character.  It isn’t necessary to frighten anyone.”

Ashurbeyli Interviewed (Part II)

The rest of former Almaz-Antey chief Igor Ashurbeyli’s interview with RIA Novosti . . .

Asked about the future of PVO, PRO, and VKO, Ashurbeyli says he sees the role of ground-based systems declining, and future “fire means” — after the S-500 — will be air-based.  Part of them, he claims, are already in RDT&E.

Returning more to the present, the former Almaz-Antey head says the Defense Ministry asks the impossible of weapons developers.  They have to sign contracts they know they can’t complete in the stipulated time frames, otherwise they’d have no work.

Ashurbeyli goes on to explain Almaz-Antey’s current production quandary.  The S-300 has been made only for export over the last 15 years.  One foreign order has just been filled, and only one remains.  So Ashurbeyli sees a gap between S-300 and S-400 production, and he predicts a decline in the factory’s operations in 2013 or even late 2012.

The lead-time for producing S-400 components is 24 months.  So, without budget advances today, there won’t be anything to produce in 2013.  In 2011, Ashurbeyli says, not a single supplementary S-400 production contract has been signed.

Ashurbeyli sounds a lot like former MIT head and solid-fuel ICBM maker Yuriy Solomonov who announced in early July that the 2011 state defense order is already broken.  Is it a coincidence both men were unseated from their general director and chief designer duties?

Ashurbeyli says:

“At the same time, the load on the plant today is far from full and the absence of contracts doesn’t allow for further renewing equipment and technology.  We have to understand that the S-400 is made on the very same equipment as the S-300.”

In response to another question, Ashurbeyli makes his case for consolidating the structure of aerospace defense industries.  He calls for a unified industrial corporation, a Concern VKO, to execute the Defense Ministry’s orders, and it’s needed, he continues, when a unified VKO is established [before 2012].  Organized like OAK or OSK, Concern VKO would bring in VKO-related weapons developers who aren’t part of Concern PVO Almaz-Antey. 

Ashurbeyli says this fall he’ll propose his view on how to integrate these enterprises and how to build the future VKO system to the country’s leadership.

So, where does this leave us?  If Ashurbeyli’s description is realistic, there’s no shortage of Almaz-Antey production capacity and no real need for new plants.  The problem is the lack of orders from the Defense Ministry.  For all the hype about increased defense spending and 20-trillion-ruble GPV 2011-2020, the absence of orders could be due to the military’s lack of cash or its difficulty arranging bank financing.  Or, despite Defense Minister Serdyukov’s talk about streamlining the GOZ, it could be that bureaucratic sclerosis (or corruption) is hindering the issuance of new contracts.

Ashurbeyli Interviewed (Part I)

Igor Ashurbeyli (photo: RIA Novosti / Sergey Pyatakov)

Former Almaz-Antey General Director Igor Ashurbeyli gave RIA Novosti a long interview published on Monday.  Ashurbeyli was replaced at Almaz-Antey in early 2011, and he’s now a co-chair of the “Extradepartmental Expert Council on Aerospace Defense.”

He’s an accessible figure, having had extended sessions with the media in 2010 and 2009.  And his view of things has been pretty consistent.

This most recent Ashurbeyli interview spawned a number of sound bites saying that the former lead designer (among other things): 

  • called for establishing an overarching VKO industrial concern; 
  • offered the S-500 for European missile defense; and
  • said S-300 production has ended.

He actually had a lot more to say that might be worth a look.

Asked about Moscow’s anti-missile defense, Ashurbeyli replied that the service life of some Russian strategic interceptor missiles expired, while others [53T6 or Gazelle missiles] had their nuclear warheads removed per the decision of former President Yeltsin. 

Then Ashurbeyli gets to his point — the need for a new anti-missile defense (PRO) led to work on the mobile S-500 system.  Under the contract, it’s supposed to be accepted into the arsenal in 2015.  A schematic draft is complete, and technical design is being conducted.

On air defense, he says the S-300 and S-400 cover Moscow, but the service life of S-300PS systems will expire in the next year or two, and the new Vityaz system won’t be ready to take its place in the PVO network.

Ashurbeyli adds that Vityaz is expected in 2014-2015, but delays are possible due to problems with the new missile.

But, insists the former Almaz-Antey chief, there have never been any technical problem with the long-range missile for the S-400.  He says the problems have involved financing, preparing prototypes, and targets.  More targets and an updated target complex were needed.  And he foresees possibly the same problems with Vityaz testing.

Ashurbeyli tells his interviewer Vityaz, unlike the S-400, has just one base missile.  It will cover the same missions as the S-300PS and S-300PM.  The latter were last manufactured in 1994, and several dozen of the “freshest” will still have life for the next 7-10 years.  Most were updated to the Favorit (S-300PMU2) level but they aren’t new.  So, Ashurbeyli concludes, Russia needs to produce enough Vityaz to replace fully its S-300PS and S-300PM inventory.

The interviewer says relatively less has been written about Morfey.  Ashurbeyli obliges.  Morfey, he says, is a super short-range system and part of Russia’s echeloned defense.  While Vityaz is a medium-range system, and Pantsir and Tor are short-range weapons, Morfey is super short-range.  If developed as envisioned, Morfey will be unique.  It will have an omnidirectional cupola-type radar instead of a rotating one.

In sum, Ashurbeyli believes Morfey, Vityaz, S-400, and S-500 will be sufficient for the ground-based component of VKO for 20-25 years.  The tasks for Morfey and Vityaz were set in 2007 when the VPK decided to develop a single fifth generation surface-to-air PVO-PRO system.  The more complex S-500, he notes, will be longer in development.

More later.

News on New Almaz-Antey Plants

According to TsAMTO, the press-service of OAO Concern PVO ‘Almaz-Antey’ says the firm will sell supplemental stock this month, and some of the extra working capital will be used to finance construction of two new surface-to-air missile assembly plants.  Hat tip to VPK.name for highlighting the story.

Specifically, Almaz-Antey intends to spend more than 3.5 billion rubles to finance the new factories.  Four and a half billion rubles in federal budget money was already allocated to this effort in 2010 in exchange for additional government shares in the company.  And Almaz-Antey is also using government-backed credit in the expansion. 

The assembly facilities will be in Nizhniy Novgorod and Kirov.  They are supposed to be complete in 2015.

Some World-Class Competitors

Despite problems with its state defense order and defense-industrial complex, Russia clearly has world-class defense producers.  This is apparent not just from their arms exports, but it’s also evident in their defense-related revenue.

Eight Russian companies just made the Defense News list of the Top 100 defense corporations worldwide.  They are Almaz-Antey, Helicopters of Russia, Sukhoy, Irkut, United Engine-building, Tactical Missiles, KB Instrument-building, and RTI Sistemy.

With 2010 defense revenue of nearly $4 billion, Almaz-Antey has appeared in the list since 2005 (Antey appeared alone prior to that).  Yet its revenue’s only about half that of Thales, a fourth of EADS, perhaps reflecting that those companies are more diversified in their defense and non-defense business. 

Helicopters of Russia vaulted into the middle of the Top 100 list with 2010 defense revenue of nearly $2 billion (a gain of 134.1% over 2009).  Consolidation of its helo design and manufacturing capabilities seems to have put Russia on the map (or at least on the Top 100).  Still, Helicopters of Russia has about half the defense revenue of Textron, and half as much diversification in its business.  The difference is more pronounced when comparing to United Technologies.

Sukhoy and Irkut need no introduction, but it’s a little surprising that their defense revenue was lower than Helicopters of Russia.

United Engine-building (ODK) is an interesting case.  Not huge defense revenue, but more diversified than other Russian corporations in the Top 100.

A number of Russian companies have fallen out of the Top 100 over the years.  They include submarine and shipbuilders Sevmash, Admiralty Wharves, and Northern Wharf (the United Shipbuilding Corporation — OSK — hasn’t appeared in their place), RSK MiG, Uralvagonzavod, and Aerospace Equipment.  It’s hard to say why they’ve fallen off; it could be their financial reporting — still sketchy at times — has made it hard to evaluate their revenue claims. 

Still, eight Russian companies in the Top 100 is a long way from 1999 when only Rosvooruzheniye (remember it?) made the list.

The Russian firms in the Top 100 are strong weapons and military equipment exporters, but the lesson for them from abroad seems to be that greater diversification and more civilian business makes a defense company more profitable.