The Russian civil aircraft industry has a wide range of problems. Most of these problems are related to the under-spending on this field. In own turn, the luck of spending has been related to the lack of successful projects, first of all domestic- built medium-range aircraft.
Leaders of the industry and the Russian top leadership understand this problem. This is why in 2006 the United Aircraft Corporation started working on an initial design of the Irkut MC-21 single-aisle twinjet airliner. By 2019, the plane has been finalized. It’s ready to enter into a serial production. However, if one wants to achieve a success with the MC-21 project, customers and funds are needed.
It has been expected that the government will contribute significant efforts to convince Russian companies to buy the MC-21 providing using both input subsidies and administrative measures. However, on April 2, Russian newspaper Izvestia reported that the government would not oblige low-cost airline Pobeda Airlines [a wholly owned subsidiary of Aeroflot – de facto national airline of Russia] to buy MC-21 planes instead of Boeing 737 MAX. The number of planes in the question is 30.
This decision, which was made during a meeting involving Deputy Minister for Industry and Trade Oleg Bocharov, Aeroflot CEO Vitaly Savelyev and UAC President Yuri Slyusar, was formally motivated by ‘lower costs’ of the Boeing 737 MAX exploitation. Even if the formally declared reason is true, the decision to allow a de-facto state-controlled entity to buy foreign planes instead of domestic ones goes contrary to actions of any government seeking to develop own economic and state. Such decision was impossible in the USSR. However, even in the modern “capitalistic” world, such decisions are barely made by any developed country. One of the most recent successful examples of protectionist measures designed to support domestic industry is the US. The Trump administration is not counting cents of particular economic entities. It’s supporting the US national industry in general pursuing a strategic goal.
As to the situation with MC-21, it would be also interesting to look closer at the numbers used as an explanation of Pobeda’s decision to buy Boeing 737 MAX planes. According to the report, the daily flying hours number by one Boeing 737 MAX is 13.2. At the same time one MC-21 has 5.8 daily flying hours in the first year of the exploitation, 7.8 – in the second year and 10.3 – in the third year. In the fourth year and further, one MC-21 would have the daily flying hours number similar to those one of the Boeing 737 MAX.
Let’s suppose that these numbers are right. So, we can count a possible difference in flying hours between 30 MC-21 planes and 30 Boeing 737 MAX in 3 years.
- First year: (13.2-5.8)*365*30 = 81,030 flying hours
- Second year: (13.2-7.8)*365*30 = 59,130 flying hours
- Third year: (13.2-10.3)*365*30 = 31,755 flying hours
- Total: 171,915 flying hours
One service hour of such aircraft costs approximately 8,000 USD. Taking into account this number we can get that the Russian government will need to provide 1,375,320,000 USD [$1bn 375m 320thousands] in subsidies in order to fill the created gap.
Now, let’s count the difference between the cost of the aircraft:
- One Boeing 737 MAX costs about 120,000,000 USD [$120 m]. 30 planes – 3,600,000,000 USD [$3bn 600m].
- One MC-21-300 costs 96,000,000 USD [$90m]. 30 planes – 2,700,000,000 USD [$2bn 700m].
Therefore, the cost of 30 MC-21-300 planes is 900,000,000 USD [$90m] lower that the cost of 30 Boeing 737 MAXs. It’s clear that depending on terms and conditions of the reached contract the cost of one plane [both MC-21-300 and Boeing 737 MAX] can be different, but these numbers allow to get a general perspective.
Taking into account the difference between the exploitation costs and the cost of the planes themselves, it’s possible to figure out that the real number of the subsidies, which the government would have to contribute to support the decision to buy MC-21 planes, will be 1,375,320,000 USD [$1bn 375m 320thousands] – 900,000,000 USD [$90m] = 475,320,000 USD [$475m 320thousands].
It is hard to suppose that the government, which is really aiming to develop the national industry, will not find this amount of money to support the key civil aviation project. Furthermore, $2bn 700m spent on 30 MC-21 planes will remain in the national economy and contribute to its further development.
Additional data in response to the asked questions:
This reasons of the decision to choose the Boeing Boeing 737 MAX mentioned and addressed in this article are those one provided by Russian state media and officials. Nobody pointed out the lack of production capabilities as the reason of the decision. If one wants to get details regarding this issue, it will be useful to request the MC-21 producer.
If the MC-21 producer is not capable to deliver 30 planes in 2019, this is not a reasonable reason to reject the plane. It is always possible to buy all MC-21s, which are produced and get the rest needed planes from a foreign manufacturer. However, we once again want to draw attention to the fact that the official named reason is the “daily flying hours” issue and its economic impact on the exploitation – the cash.
Boeing 737 MAXs have been recently grounded in multiple countries around the world because they officially recognized to be unsafe. Even the US, where Boeing is located, did this.
Funds, political willpower and adequate control are the core factors that would give the MC-21 project a chance to become successful. 30 planes, which Pobeda could buy, is an obvious source of the funds.
Another important factor is the customer. Pobeda is a wholly owned subsidiary of Aeroflot. This is a formally low-cost airline. However, its prices are higher than in similar ‘low-cost airlines’ in other countries, in particular in Turkey. Pobeda has repeatedly been in the center of various scandals related to its prices and approaches to clients. Aeroflot itself is formerly the Soviet national airline, which later was transformed from a state-run enterprise into a semi-privatized company by a very questionable way. Currently, 51% of Aeroflot is owned by the Russian government.
Aeroflot and Pobeda receive various government subsidies and preferences, which they use to generate income for own top management and affiliated circles. The general practice is that income of companies financed by the nation should be limited by law or be close to zero. However, as it’s possible to see the case of Aeroflot and Pobeda is different.
This state of affairs was established in the 1990s. The key question is why has the Russian government contributed little efforts to change it?