Market of AL-31F Aircraft Engine and Stability of Russian Arms Exports

Konstantin MAKIENKO

Aircraft subsystems and components - foundation of stability of Russian arms exports

Beginning with 1999 Russia has been steadily boosting arms exports. While in 1998 deliveries totaled $2.6 billion, in 1999 Rosvoorouzhenie intermediary alone guaranteed deliveries worth $2.9 billion and the last year of last century registered a record in post-Soviet times at $3.68 billion. In 2001 the foreign currency receipts of the biggest Russian exporter Rosoboronexport reached $4 billion. Thus, already at this point, we have every reason to predict a new record in arms trade volumes. The good performance in 2000 and 2001 stems mainly from an increase in deliveries of the Su-27/30 family fighter air­craft. In general, aircraft of this type have be­come the foundation of Russian arms exports by bringing in almost half of all foreign currency returns. The tendency will remain for at least three or four years while major contracts for the delivery of Su-30MKK fighter-bombers to China and Su-30MKI multirole fighters to India are carried out.

However, there is a common understanding in the community of Russian arms traders and ex­perts that after 2005, when current contracts are fulfilled, the market potential of Su-27 and Su-30 will plummet. The relative saturation of the air forces of Russia's two key customers on the world arms market - China and India - with heavy fighters and the appearance of such serious competitors as F/A-18E/F, Rafale and Eurofighter multirole fighters will further aggravate the situation.

In general it should be noted that the structure of arms deliveries on the world market will change significantly in the next five to seven years. Aircraft assembly technologies are be­coming available to new aircraft-making coun­tries due to the spread of offset deals and li­cense agreements. For instance, the United States has agreed to transfer the production technology of its commercially most successful F-16 fighter to Turkey, South Korea and Japan. At that, Turkey was not only given the right to as­semble fighters for its own Air Force, but also for export to Egypt and even Greece. In the hope of winning a tender of the Brazilian Air Force for 20-24 fourth generation fighters, France has announced that if the Dassault Company wins, Mirage 2000-5Br fighters will be manufactured at a facility of the Brazilian Embraer Company. The European consortium manufacturing the Eurofighter does not intend to manufacture airplanes in Europe at all, if they are made under export contracts. The idea behind the business plans of the consortium is that aircraft will be assembled in the customer-countries.

In Russia the situation is largely the same. After selling relatively small quantities of Su-27SK/UBK air superiority fighters and trainers and Su-30K multirole fighters to China and In­dia in the first half and middle of the 1990s it signed license production agreements with both. In 1996 it concluded a $2.2 billion license con­tract giving China the right to assemble 2000 Su-27SK/J-11 air superiority fighters at its plant in Shenyang. In December 2000 a $3.3 billion deal was signed with India on the pro­duction of 140 Su-30MKI multirole fighters at a plant of HAL Corporation in Nasik.

Thus, in its export policy, Russia is following the general world trend of transferring aircraft pro­duction technologies to clients that have ac­quired significant quantities of combat aircraft systems. If the trend continues, traditional war­plane manufacturing countries will inevitably be ousted by new aircraft-making nations to more high tech niches. R & D, the production of high tech units and subsystems and the manufacture of air-borne weaponry will become such market segments. For Russia the trend will be espe­cially vivid because its main clients - China and India - already have relatively well-developed domestic aircraft industries.

We may assume that in the foreseeable future Russia will retain technological leadership in at least two market segments: the development and production of arms control systems for fighter aircraft, primarily the most complicated and es­sential system of advanced aircraft - the onboard radar system, and also the production of aircraft engines for fighter aircraft. Neither China, nor India at the moment has the necessary scientific or technological potential or experience to achieve self-sufficiency in these two spheres. Thus, in the medium term, after the market po­tential of heavy aircraft platforms of the fourth generation starts declining but R & D on ad­vanced aircraft systems is not be completed, the stability of Russian arms exports will directly depend on exports of radar equipment and engines.

Market segmentation of AL-31F/FP engines

The market of aircraft engines depends primarily on the exports of aircraft proper. The financial flows generated on the engine market are marked by high stability and inertia. Disre­garding the price of maintenance services, re­pairs and upgrading, the estimation of which is too complicated, we may assume the following about the market segmentation of AL-31F and AL-31FP engines:

Firstly, AL-31F engines are delivered to China, India and Vietnam together with big consign­ments of Su-27SK/UBK, Su-30K, Su-30MKK and Su-30MKI modifications.

Secondly, as a rule a certain number of reserve engines is delivered together with big consign­ments or shortly after. Then throughout the ser­vice life of aircraft there remains the market of maintenance and repairs and after a certain stage - engine replacement. Up to three sets of engines are usually changed during the service life of a warplane.

Thirdly, a separate and ample market emerges with the beginning of licensed production of Su-27SK in China and Su-30MKI in India.

Fourthly, apart from the above there is also demand for engines in China related to its pro­gram of developing the national F-10 light fighter of the fourth generation.

Estimate of AL-31F deliveries under large-scale contracts

Reports of deliveries made by the end of 2000 and planned transfers of big quantities of the Su-27/30 family aircraft permit a relatively accurate estimate of this segment of the AL-31F engine market. We proceed from the assumption that the average cost of the engine is $2.8 million. In actual fact the price fluctuates between $2.7 and $3 million, but part of the payments, especially in the early 1990s were made by commodity deliveries or on a clearing basis.

Table 1. Estimated price of AL-31F engines delivered by end of 2000 under contracts for the Su-27/30 family fighters*

Importer	Subject of transfer	Transfer year	Number of engines	Estimated price of engines, $ mln
China	26 Su-27SK/UBK	1992	52	145
China	22 Su-27SK/UBK	1995	44	125
Vietnam	14 Su-27SK/UBK**	1994-1995	28	80
India	8 Su-30K	1997	16	45
India	10 Su-30K	1999	20	56
China	8 Su-27UBK	2000	16	45
China	10 Su-30MKK		20	55
Total			196	Up to 550

* deliveries from Russian Defense Ministry stocks not included

** including the additional delivery of 2 Su-27UBK to compensate for those lost in the crash of the An-124 aircraft in December 1997

Table 2. Estimated price of AL-31F/FP engines assigned for transfer in the framework of known delivery contracts*

Importer	Subject of contract	Year of contract	Assumed delivery year	Number of engines	Estimated price of engines, $ mln
China	28-30 Su-30?KK**	1999	2001-2002	60	170
China	20 Su-27UBK***	1999	2001-2002	40	112
China	38-40 Su-30?KK	2001	?	80	224
India	32 Su-30 ?KI	1996	2002-?	64	180
Total				244	685

* At the end of 2000

** 10 Su-30MKK transferred in December 2000 not included

*** 8 Su-27UBK delivered in 2000 not included

It should be added that standard interna­tional practice is to deliver 30% of reserve en­gines together with a commercial consignment. There is no information in the Russian press about such deliveries. But if we assume that en­gines were delivered on a comparable scale either together with the commercial consignments or shortly after, the delivery of about 200 AL-31F engines to China, India and Vietnam installed in the aircraft should have been followed by the shipment of approximately 60 engines worth $160 million. As the engines will be used in the mountains in conditions of high humidity and temperatures and as neither Chinese, nor Indian pilots so far have the necessary experience in piloting fighters of the Su-27/30 family, we may assume that the service life engines will expire quite fast. And this means that the assumption of additional engine deliveries is even more justified.

Engines delivered under license contracts

There is reliable information to date about two signed agreements on the production fighters of the Su-27/30 family under license abroad: with China on the manufacture of 2000 Su-27SK in Shenyang and with India on the production of 140 Su-30MKI at a HAL Corporation facility in Nasik.

It is essential that the license agreement with China does provide for the transfer of the technology of manufacturing AL-31F engines. Hence, J-11 fighters of Chinese make will be equipped with engines delivered from Russia. It is easy to count that the assembly of 200 units requires at least 400 engines. This does not include reserve stocks. If we assume that the average price of an AL-31F engine is $2.8 million, the entire program is worth an astounding sum of $1.12 billion.

It is much more difficult to evaluate the price of AL-31FP engine deliveries to India in connection with the license contract. Firstly, we do not know the price of the engine that has a deflecting thrust vector and a new control system and therefore is more expensive. However, the main reason for uncertainty is that under the license contract India received the right to manufacture the engine at its own facilities. The Ufa Motor-Building Production Association is responsible for this part of fulfilling the contract. The price of the engine component of the contract is not known. Theoretically, it should constitute no less than 20% of total. In this case the minimal price of the engine component should be around $600 million. However, the actual sum is likely to be bigger because it is more difficult to organize engine production than aircraft assembly. India will probably be receiving engines directly from Ufa for a long time, and when it finally launches engine production at local facilities, the added value will remain insignificant.

Thus, even the most conservative estimate of engine deliveries, the transfer of technologies and components under the two license contracts runs to $1.7 billion. We can assume with a high degree of probability that in actual fact the figure will be much bigger.

Engine deliveries for national programs

The third and potentially biggest segment of the AL-31 engine family market is related to programs of developing national Chinese and Indian light fighters to meet the requirements of the fourth generation.

At the moment we definitely know that China has chosen the AL-31F engine modification with the low-set unit arrangement - AL-31FN for its J-10 light fighter developed on the basis of the Israeli Lavi project. The Russian press has reported a contract for 300 such engines. No matter whether these reports are true or not, we have every reason to assume that the minimal demand of the Chinese Air Force is for 300 light single-engine aircraft. Sometime in 2005-2007 when the fleet of Su-27/30/J-11 heavy fighters reaches 600-700 units, China will need to manufacture up to 1,000 light fighters of the fourth generation to balance its Air Force. This means that the total demand will reach 1,000 AL-31FN engines at the nominal price of $2.8 billion. It is clear that China will hardly import such quantities of engines, especially after the license for their production has been sold to India. Therefore, we can expect that in a number of years, when the question of launching the large-scale production of J-10 rises comes to the agenda, China will want to acquire the right to assemble AL-31F or AL-31FN at its own facilities. The price of the license is likely to be lower than the price of commercial deliveries of such a big amount of engines, but still it will amount to hundreds of millions of dollars.

The prospects of AL-31F being installed in the Indian LCA fighter are vague. In the first place, India is trying to develop its own Kaveri engine. Its chances are poor, but that does not greatly improve the chances for AL-31F. The problem is that the LCA project has dragged out for too long and as a result the prototype has grown obsolete even before the beginning of its serial production and even before the end of testing. Given India's plans of importing big quantities of Su-30MKI multirole fighters, MiG-29K naval fighters and Mirage 2000, the level of funding for the LCA project is such that it rules out the possibility of any serial production in the near future.

Thus, at present, we can assume with a high degree of probability that the deliveries of engines and their components, combined with the possible transfer of documentation and technologies for the production of AL-31F in China for its national J-10 fighter, may total at least $1 billion.

Conclusions

Proceeding from the most conservative estimates of the price of AL-31F and its modifications and the demand of the Chinese and Indian Air Forces for the Su-27/30 family aircraft we can assume the following about volume of the market of these engines in the 1990s and in the nearest future:

• The nominal price of engines transferred in the framework of contracts implemented in the 1990s is $550 million. The price of engines transferred in addition to the delivery contracts is estimated at up to 160 million.

• The delivery contracts known from open sources imply the transfer of approximately 250 AL-31F and AL-31FP engines worth up to $700 million in 2001-2004.

• The biggest receipts are expected from the license contracts for the production of J-11 in China and Su-30MKI in India. The minimal price of the engine component of the deals may amount to some $1.7 billion.

• China's minimal need for AL-31FN engines to launch the production of the J-10 light fighter is 300 units worth $850 million. The production on a larger scale will require the acquisition of a license for engine manufacture in China.