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Russian Military Procurement – New Budget, Old Problems |
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(Source: Frost & Sullivan; issued Jan. 27, 2006)
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After the approval of the 2005 Military Budget, President Vladimir Putin alleged that the new budget should be a turning point in the modern Russian military history and should set the trend for the future.
For the first time since the break-up of Soviet Union, the government plans to invest in new technologies and to re-equip the most important and strategic parts of its Armed Forces, particularly the military aviation. The idea is to counter the growing influence of NATO in the region, and to allocate more resources to avoid a likely NATO expansion by compensating political instability in places like Kyrgyzstan and Ukraine.
Nevertheless, taking into account these new trends, the US$28.4 billion budget for 2006 is hardly a surprise. Although the budget was nominally increased by 30% compared to 2005, the inflation rate makes the real increase much lower. There is in fact little or no margin in the budget for R&D and more importantly for equipment Maintenance, Repair and Overhaul (MRO).
At the moment, most of the aeroplanes and helicopters in the Russian Armed Forces are considered to be in the mature phase. Around 55% of the platforms are in use for more than 15 years, and 90% of the fleet operate under platform life extension programmes. According to some data, lifecycle of the majority of the fleet should end within five years. This means that at least 3,000 aircraft and 1,200 helicopters would soon be taken out of service.
As stated by the chairman of Russian Parliament’s Defence Committee, in order to re-equip just the Air Force, the Russian Government should procure on a yearly basis some 150 fixed wing aircraft and at least 60 helicopters for the next 20-25 years. The current budget, as presented, is sufficient to modernise 17 Su-27 and no more than 20 Mi-8/17 and Mi-24 helicopters. The pilots’ professional training has also been suffering from a lack of funds, and, in most cases, trainee pilots fly only 60 hours per year. This is not a sufficient preparation for crews that are supposed to fly main frontline aircraft such as MiG-29s and Su-27s.
The situation with the military budget is aggravated by the fact that the Government owes money to the aerospace companies. This has been a constant problem since the collapse of Soviet Union and has not been properly addressed as yet. Russia has been attempting to save its military aerospace industry by means of concentrated exports, especially to growing economies in Asia.
However, the internal market remained exposed due to federal government, low-profile purchase policies. Only now are the serious geopolitical consequences of this becoming apparent. To solve the problem, the Russian Prime Minister Mihail Fradkov, at the end of 2005, took an innovative decision: to pay the government debts using extra purchases. The goal is to optimise MoD procurement and to allocate resources to the most important projects.
However, despite of the above mentioned changes, 2006 will not bring serious shifts in Russian military procurement. With the increasing power of the export intermediary Rosoboronexport, Russia will continue to promote and sell platforms to foreign developing economies, while leaving the internal defence to continue to wait for better days. The development of a Russian 5th generation fighter is still in the project phase waiting for promised federal help. Even the Russian Regional Jet is encountering serious competitors from outside Russia.
The market consolidation through the merger of the major aerospace companies into two major holdings will stay on the agenda this year, although according to some opinions, the project should be put into practice only in 2-3 years. The main goal is – once again – to strengthen Russia’s defence products image worldwide.
Although military procurement in general should stay at 2005 level, or even a little lower, the market for aircraft & engine MRO, as well as for platform life extension and modernisation may grow due to the expanding US and NATO presence in Central Asia and Eastern Europe. The existence of several foreign air bases in the region will force Russia to re-enforce the effective forces in the area, in an attempt to recover lost influence, and, to intensify Russia’s role as a geopolitical trouble-shooter in such questions as Iran, Iraq and the Caspian Sea. As a part of this new doctrine, Russian forces are prepared to be deployed in regional conflict situations.
-ends-
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