Mikhail Pogosyan, President of the United Aircraft Corporation / A. Makhonin / Vedomosti

1979

He joined the Sukhoi Design Bureau as an engineer and has been the company's CEO since 1999.

1998

General Director of Sukhoi Company (until 2011)

2007

First Vice President of the United Aircraft Corporation

2009

General Director – General Designer of JSC RAC MiG

2011

appointed President of the United Aircraft Corporation

"I didn't encourage my son to work in the aviation industry"

It was recently announced that 27-year-old Artem Pogosyan, the son of the UAC CEO, has been appointed Senior Vice President for Economics and Finance at Sukhoi Civil Aircraft, a UAC "granddaughter." Mikhail Pogosyan says that going into aviation was his son's independent decision: "He could have applied his skills in another field, but Artem himself came to SCS in his final years at the Higher School of Economics. He acquired good skills and experience, and rose through the ranks for a long time. And although I did not initiate his appointment, I believe that he will succeed. There are quite a few dynasties in the aviation industry, so this is not a unique case. Perhaps the choice of profession is due to the family atmosphere, where aviation takes up most of life."

United Aircraft Corporation (UAC)

aircraft manufacturer. Shareholders – the state (83.4%). Financial indicators (IFRS 2012): Revenue – RUB 171.019 BILLION, net debt – RUB 162.746 BILLION. UAC was established by the decree of the President of the Russian Federation on February 20, 2006. JSC UAC includes: JSC Sukhoi Company, JSC Irkut Corporation, JSC UAC - Transport Aircraft, JSC Nizhny Novgorod Aircraft Plant Sokol, JSC Tupolev, JSC Ilyushin Finance Co., JSC Financial Leasing Company, CJSC Aviastar-SP, JSC VASO, JSC RSK MiG, JSC KAPO im. S. P. Gorbunov, JSC EMZ im. V. M. Myasishchev, JSC LII im. M. M. Gromov.

Superjet under a new name

In Le Bourget, UAC will present the Superjet under the Interjet logo, the largest Mexican carrier with which UAC has a contract for the delivery of 20 aircraft. Last year was unsuccessful for the Superjet. In May, due to a piloting error, the aircraft crashed during a show in Indonesia. In July, at the Farnborough Air Show in England, its launch customer Armavia refused to accept it (a few months later, however, it became clear that the aircraft itself had nothing to do with it: Armavia launched bankruptcy proceedings). From autumn to spring, the aircraft, while in service with Aeroflot, failed to fly or returned to the departure airport several times. And even Rosaviatsia recommended limiting the use of the liner for a week. But now the airline's aircraft are being replaced with a full version, which fully meets Aeroflot's requirements. "The level of comfort that the Interjet has is unparalleled for regional airlines. The size of the luggage racks allows for standard luggage, the toilets are spacious – they can be used, for example, for changing babies. Interjet has its own strategy, and Superjet fully complies with it,” says Pogosyan.

UAC's previous performance at the Farnborough Airshow was unsuccessful: no new contracts were signed, and some contracts were cancelled. At the Le Bourget Airshow, which opens today, UAC wants to impress potential customers. UAC President Mikhail Pogosyan says that the Russian aviation industry's exposition will be the largest in the last 10 years: "For the first time in many years, we will demonstrate the diversification of the Russian aircraft industry in action." The Su-35 and Yak-130 military aircraft will be presented for the first time at the airshow. And a civilian Superjet in the livery of the Mexican carrier Interjet. The Superjet order book will also be expanded. In particular, one of the largest contracts in the history of Superjet is to be signed - with the leasing company Ilyushin Finance Co. Mikhail Pogosyan did not talk about other possible contracts that are planned to be signed in France. In an interview with Vedomosti on the eve of the air show, he spoke about how UAC is moving towards its stated goal of becoming one of the industry leaders, what problems were identified during the operation of the Superjet aircraft by Aeroflot, and about the upcoming privatization of the company.

– How do you plan to surprise viewers and potential customers at the current air show?

- First of all, the Paris Air Show is the world premiere of the Su-35 fighter. All participants of the exhibition are very interested in the flight demonstration of the Su-35. We have already delivered 10 aircraft to the Ministry of Defense, and we are planning export deliveries in the future. I am sure that this aircraft will be the star of the air show. And this star will be Russian.

We will once again show the Yak-130 trainer. We supply these aircraft to the Ministry of Defense and also promote them on the foreign market. For the first time, we will present the Sukhoi Superjet 100 (SSJ100) with a completely new cabin, intended for the Mexican customer Interjet. The only thing missing to complete the picture is the Il-476 aircraft. It is currently undergoing flight tests and could complement the UAC production line with a transport aircraft. We will demonstrate it at MAKS this year. Thus, we will present almost the entire UAC line in Paris, and this is evidence that we are taking real steps to increase production volumes and restructure our business.

- You are showing the Su-35 abroad for the first time at Le Bourget. This is a commercial project, its development was not financed by the budget, and now there is only one order from the Russian Air Force and a small potential Chinese order. Will the existing and expected orders in the coming years be enough for this development to pay for itself?

– There are enough orders. According to our estimates, the total volume of deliveries is more than 200 aircraft. In 2009, a contract was signed for the delivery of 48 Su-35S multirole fighters for the Russian Air Force. The state armament program provides for additional deliveries of Su-35 fighters. We are confident that the Su-35 will demonstrate to the global aviation community the high quality of combat aircraft produced in Russia and their obvious superiority over competitors. Together with Rosoboronexport, we are working to promote the aircraft on the foreign market. Many of our traditional customers are showing great interest in the Su-35.

– How do you assess the progress of testing the fifth-generation T-50 fighter (PAK FA) and the work with Indian partners on its version for the Indian Air Force?

– More than 500 flights have already been conducted on flight models and flying laboratories. Six aircraft are involved in static, ground and flight tests. A unique test facility was created specifically for the PAK FA program. It allows us to simulate most flight situations on the ground and thus significantly reduce the cycles and cost of tests in the air. We have already confirmed the flight and aerodynamic characteristics of the aircraft. Moreover, they exceeded our expectations in a number of parameters. The task for the near future is to begin mating the onboard equipment systems with airborne weapons. This year we must complete the preliminary testing stage and transfer the aircraft to state tests. Their first stage must be completed in 2015. Together with our Indian colleagues, we are completing the development of the aircraft’s preliminary design in accordance with the technical requirements put forward by the Indian side. The appearance of the aircraft has been fully developed. The scope and division of work of the parties at the stage of experimental design work (R&D) have been agreed upon. The next stage is signing the R&D contract.

– In 2011, at the previous Le Bourget, UAC presented an ambitious development strategy – to become one of the top three aircraft manufacturers by 2025. Have the priorities changed?

– Any strategy is a progressive movement forward. Nobody said that this path would be strewn with roses. We are fulfilling our obligations. At the previous Le Bourget, we talked about plans to change the ratio of military and civilian equipment sales so that military orders would only account for about half of revenue by 2025. We are moving steadily toward this goal. And we are working in very difficult conditions. In parallel with increasing production, we are reviving unprofitable production facilities and building a new infrastructure for the industry. Over 150 billion rubles were spent on debt repayment alone. Nevertheless, last year UAC’s revenue was over 170 billion rubles. In 2012, we manufactured 104 aircraft, of which more than 20 were civilian aircraft – three times more than in 2011.

In 2007, during the first year of UAC operations, 54 aircraft were manufactured, and the total revenue of the holding's enterprises was estimated at only 70 billion rubles. Since then, we have doubled our revenue and reduced our losses by 5 times. The corporation demonstrates 20% growth every year. This year, 70 combat aircraft will be delivered to the Ministry of Defense alone. We must also deliver about 40 civilian aircraft. By 2015, we plan to manufacture more than 200 aircraft per year and reach revenue levels in excess of $10 billion. Fulfilling orders for the production of civilian and transport aircraft, along with the stable production of combat aircraft, will allow UAC to reach the break-even point in 2015–2016.

But the most important thing is that we have laid a good foundation for the company's growth and increased competitiveness. There are projects underway to develop new transport and civil aircraft with foreign partners. We have begun creating competence centers. We have invested more than 8 billion rubles in the construction of new plants for the production of units from composite materials in Kazan and Ulyanovsk and are launching two new plants this year. A Center for the integration of the newly created MS-21 aircraft and other UAC civil projects has been created. A number of new production facilities are still at the launch stage, including a center for the production of engine nacelles in Voronezh, centers for the production of doors and hatches, and a foundry in Ulyanovsk. We will attract third-party investors to create the centers - Russian and foreign: companies from Austria, Israel and other countries. As a result, an infrastructure will be created that will allow us to implement such a complex project as a composite wing for the MS-21 aircraft. Based on this technology, we will create other promising products in the field of civil aviation.

- Has the formation of the state order for new UAC aircraft models been completed? What are its parameters?

- We have agreed on the requirements with the main customers. General parameters of the order: 150 aircraft with a total value of over 200 billion rubles. The Ministry of Industry and the Ministry of Finance are developing financing mechanisms and clarifying the details of this order. We know how many aircraft the government customers need, we know the preliminary technical appearance of these aircraft. Financing schemes are being clarified.

– How much money in total has been invested in the development of the UAC?

– The issue of industry recovery is, first and foremost, an issue of investment, but not only. In order for investments to come – from the state or commercial investors – the subject of these investments must be obvious. The aircraft industry had to clearly define its priorities and show the vector of movement. This process began in the late 90s, namely at Sukhoi. We did not rest on the laurels of export contracts, but clearly defined the line of future products and formed a strategy for diversifying the model range. This allowed us to develop the company and assemble the best team in the industry, while retaining unique personnel. We started Superjet with market research and our own investments. Until 2005, the program was developed through our own and borrowed funds raised on the open market. The first Western investments in the industry came specifically to the Superjet 100 program. And this is about $200 million.

In the military segment, new products have been created under the Sukhoi brand over these years: Su-30, Su-34, Su-35 and PAK FA. We clearly demonstrated the potential of aircraft manufacturing and our intentions to develop the industry. And only then, in the mid-2000s, did budget investments in the aviation industry begin. Most enterprises, with the exception of the Irkut Corporation, continued to accumulate debts all this time without creating new products. RSK MiG retained a good reserve of products and development potential, but by the mid-2000s the debt burden turned out to be excessive. Because of this, over 150 billion rubles out of 263 billion rubles of total government funding went to restructuring and refinancing the debts of enterprises. This included tax and customs benefits, government loan guarantees, technical re-equipment, direct government investments and federal target programs of the Ministry of Industry and Trade. So, in the end, about 110 billion rubles were spent on the development of the entire aviation industry. And this is not only on the Superjet, as many people mistakenly believe. For such a high-tech and investment-intensive, not very prosperous industry as aircraft manufacturing, the amount is far from astronomical, but it allowed us to survive and develop further. The very fact of government investment in aircraft manufacturing is, undoubtedly, a very positive trend. In no country in the world can aircraft manufacturing develop without government support.

– How much money was invested in the Superjet project?

– The total investment in the Superjet project was about $2 billion: 13% were our own investments, 20% were financed by the Ministry of Industry and Trade, and 67% were commercial loans. About $1.2 billion was spent directly on development. The remaining funds were invested in technical re-equipment, capital construction, creation of a final assembly shop, and production of prototypes. It is important that the modernization of production makes up a significant part of the investment costs. Unlike many of our Western colleagues, we did not implement the project on an existing infrastructure, but created this infrastructure in parallel with the creation of the product. Now one of the biggest problems is the need to restructure the loan portfolio. The cost of money is very high. For a project with such a long payback cycle, the cost of money does not correspond to world practice. Our foreign competitors attract much cheaper loans.

– Why did Russia need the Superjet project?

– Russia needed a project to create a new aircraft that would bring the technological level of civil aircraft manufacturing in the country as close as possible to the technological level of aircraft manufacturing of the leaders. It was simply impossible to move forward without radical reform. Reforms in all areas – from design documentation creation technologies to after-sales service technologies and sales financing mechanisms. Superjet is a launch platform. At the launch stage, we analyzed two projects, including a supersonic business-class aircraft, which Sukhoi began working on 25 years ago. When decisions were made about Superjet in the early 2000s, we saw market potential in the development of regional aviation. We conducted market research with our partners from Boeing. We noted one of the highest growth rates of regional aviation production compared to other segments. The demand for the regional aircraft market from 2000–2020 is about 6,000 aircraft. These are aircraft of a wide range: from 40–50-seat aircraft to 120 seats. This made it possible to promote a new product on the market in this segment. Based on the Sukhoi Superjet program, a number of joint ventures were created with foreign companies - Alenia Aermacchi, Safran Group, Liebherr, Thales, etc. Sukhoi's move towards civil aircraft reflects trends in the aircraft market. 30-40 years ago, military equipment dominated the overall production volume, the main technological groundwork was laid there and only then transferred to civil equipment. Now, if we want - and we do! - to remain one of the world leaders, we must move towards increasing the production of civil equipment.

- What about the continuation of the Superjet line? Will UAC have its own Nex Generation (NG) or not?

– The UAC civil aircraft line will develop. I would not talk about the NG separately. This aircraft cannot be considered a direct continuation of the SSJ100 line. This aircraft should incorporate new technologies that we use in the SSJ100 and the MS-21. This year, we will begin deliveries of the SSJ100 Long Range aircraft to the first customer – Gazprom-Avia. This will increase the range of the base aircraft to 4,500 km. This year, we also began full-scale work on a business version of the aircraft based on the SSJ100. This will also provide a certain market – corporate clients. We are working on a cabin layout with greater passenger capacity – up to 103 passengers, and are studying the feasibility of creating an aircraft with a capacity of 110–115 seats based on the extended version of the aircraft.

In parallel with this, the basic design of the MS-21-300 passenger aircraft with a passenger capacity of 180 passengers is being created on the basis of the MS-21. The next stage is the MS-21-200 aircraft with a passenger capacity of 150 people. Therefore, between 115 and 150 passengers, we see a place in the UAC aircraft line for intermediate-sized aircraft.

- What conclusions did you draw after the first deliveries of SSJ100 to Aeroflot? What was changed in these aircraft?

– We have done a great job. The launch customer always assumes certain risks, and he receives the aircraft on significantly more favorable delivery terms. Based on the results of operation, we have made a large number of adjustments to the design. In most cases, they did not concern design features. These are not fundamental changes, but there are a number of nuances that did not manifest themselves during testing – they only manifest themselves during intensive operation of the aircraft. Our customers in Indonesia, Laos and Mexico are already receiving improved aircraft. These changes have been implemented in the first full-configuration aircraft for Aeroflot. In parallel with this, we have made most of the changes to the aircraft that are currently in operation at Aeroflot. I think that in the near future we will see specific results in terms of stabilizing the operation of aircraft. We are doing a lot of work with our suppliers to improve the reliability of systems, because approximately 70% of all failures are failures in components.

- Aeroflot is going to continue purchasing Superjet in the full version. And what will happen to the planes in the previous configuration that will be withdrawn from Aeroflot?

- They will be used by other companies.

- In which ones?

“I will be able to name them when we finish signing the contracts.

– How do you explain the interest in you from the Mexican company Interjet, which itself approached you with an offer to buy the Superjet and participate in its development?

- We have high hopes for the successful operation of our aircraft in this airline. Especially since the Interjet route network plans to put our aircraft on flights to the USA.

The key motivation for purchasing the Superjet was the high level of comfort of the liner. The plane is no less comfortable than the A319, but cheaper to operate. And it is unlikely that there will be speculation that someone forced the Mexicans to give preference to our plane. The air carrier ordered a fully economy class layout, but with a pitch of 34 inches, almost like in business class, which will allow it to attract premium passengers with tickets priced slightly higher than regular economy class.

– Is it possible to expand the order?

- Yes. Interjet is considering the possibility of ordering 10 more aircraft in addition to the first 20. Of course, the increase in the order will depend on the airline's operation.

- What about your Chinese project - a long-range wide-body aircraft? What stage is it at now?

- First of all, I would not call this project Chinese. The wide-body aircraft niche is interesting to us. China is an interesting and promising partner, and we are considering cooperation opportunities. Currently, there is no competition between individual manufacturers in the civil aviation industry; there is global competition on the world market. Boeing actively interacts with the Japanese aviation industry and uses the resources of European manufacturers. In Europe, joint projects are being implemented by France and Germany with the participation of Spain, Great Britain and Italy.

We, within the framework of SSC (Sukhoi Civil Aircraft, a granddaughter of the United Aircraft Corporation. – Vedomosti), are also participants in cooperation with the Italian Alenia (a shareholder of SSC. – Vedomosti). We are currently conducting a preliminary analysis of the market, technologies that should be incorporated into the creation of a new competitive aircraft. And then we will make a decision on the appearance of the new aircraft.

– What does the government plan to do to make Russian aircraft competitive?

– Indeed, competition in the aviation market is not competition between aircraft manufacturers. If we look at the competition between Boeing and Airbus, these are multifaceted systems of support for aircraft manufacturers from the state. Embraer and Bombardier both have this. They have a sales support system and export-import agencies. They are largely focused on promoting aircraft. We are also creating such [financing] mechanisms. The Export Insurance Agency of Russia, Vnesheconombank, and Web-leasing are participating in this. Another difficulty is that our competitors have their own sales system, developed over decades. And until 1990, we only had a state system [of orders]. After the collapse of the USSR, the aviation industry was supported by individual government decrees on financing, but they concerned individual sales of civil aircraft. Domestic demand was virtually non-existent. Now Western manufacturers, with the support of export-import agencies, can offer a rate of 3-5%. And in Russia it is practically impossible to reduce the effective rate below 7%.

– What will the new mechanism of financial support for the Russian aviation industry be?

- We want to create a support system that our competitors have on the market. About 90% of equipment is sold today through leasing mechanisms. Without this, even if we create a product 15% cheaper [than our competitors], but the cost of loans is twice as high, the project's economics will not work out.

- The structure of UAC is currently changing significantly, factories and design bureaus are being merged, competence centers are being created. Why is this being done?

– The consolidation of assets will be completed in 2018. After that, divisions will be created: combat, civil, transport and special aviation. This year, we plan to begin consolidating assets in the field of transport aviation. The merger of Tupolev JSC and the Kazan Aircraft Manufacturing Production Association is a consolidation in the field of strategic and special aviation. In the field of combat aviation, it is planned to merge the Sokol NAZ plant with MiG RAC JSC. Increasing production volumes in parallel with restructuring should enable us to achieve profitability.

– UAC is included in the privatization plan for 2016. Even contenders for the stakes are named, for example, Rostekhnologii. An IPO is also being considered. Is UAC ready for this process?

– UAC is on the list of enterprises in which the state plans to reduce its share. At the first stage, to 50% plus 1 share. But, of course, the implementation of these plans should be based and is based on real business models, which we are implementing and discussing today. Both with the Federal Property Management Agency and with the Ministry of Economic Development. In order for UAC to become an effective company, first of all, it is necessary to significantly increase production volumes. Currently, 90% of our production volume is military aviation equipment. In such a situation, privatization will not be an effective way to attract money – in a few years, the cost will increase significantly.

Although we are indeed one of the world leaders in the military aviation production sphere. But in order to talk about UAC's effective entry into the securities market, we need to reach the planned production volumes in all segments. By 2015, we plan to reach production volumes of more than 350 billion rubles. By 2020, we plan to reach production volumes of about 600 billion rubles. Then the task of entering the market will become more urgent, and the state will consider the possibility of potential strategic investors and partners joining UAC.

- How much is the company worth now? When is it advisable to privatize it, in what way, how much will the company be worth then?

– By 2015, we plan to reach break-even production and by 2018 – a sustainable level of net profit. And only after that will it be possible to consider the possibility of an IPO. Before that, it is premature to estimate the value of UAC. The most realistic time frame for an IPO is around 2020.

Interview - Mikhail Pogosyan, President of the United Aircraft Corporation