Prime Minister Dmitry Medvedev holds a meeting in Novosibirsk on regional air passenger traffic


“Development of regional air routes must be a priority of government policy.”


Dmitry Medvedev: Good afternoon. As we agreed some time ago, during a session of the state commission on the Far East, we are now holding a special meeting on regional air traffic. Strictly speaking, the site of this meeting is not important, because this is an urgent issue for all regions and federal districts. Although this country varies widely, this issue is particularly important for the Far East and Siberia.

Regional passenger flights have a social character because the mobility of the population and development of the labour market depend on them. Importantly, they are quite often vital for the life and health of people, and this is one of their main purposes. Whether a doctor can get to his or her patient in time to help -- that is usually the cost of regional routes.

The development of regional airlines must become a priority of government policy. This may sound like a platitude, but we have not yet made much progress. Today about 4.5 million passengers fly direct regional and local routes – this is 15% of all domestic routes. This figure has remained virtually unchanged since 2003, which is of course a bad sign. Direct regional flights remain at the same level at a time when domestic air traffic is growing. Even major cities are very rarely connected by direct flights. It is sometimes much more convenient to go to any part of the country through Moscow, especially if there are no railways or motor roads. This shows that the network of direct regional and local flights is not growing and is incapable of generating passenger traffic. There are several reasons for this. Let’s discuss them today.

Many countries have various programmes to support this service. These are big countries, I’m not talking about continental Europe – there is not much sense in developing such routes there, although they are developed. Yet there is always a way to reach your destination by car or train. This is important for us and a number of other big countries.

We are also carrying out special programmes, for which the federal budget has allocated 5.5 billion roubles. This is a big sum, but it's not an outstanding amount, to put it mildly. So what is being done? First, federal enterprises are being established to preserve and develop airports in the Extreme North and other territories in the same category. Every year the federal budget earmarks about 2.5 billion roubles to fund their operation.

Today, six federal enterprises have been set up on the basis of 50 regional and local airports. In addition, these airports receive about 125 million roubles in subsidies as part of reimbursement for their expenses involved in accommodating aircraft. These subsidies have allowed them to upgrade and repair their equipment, to some extent. In some cases the financial status of airports has been stabilised and airport duties have been reduced, thereby curbing the growth of tariffs on regional and local flights. But this is not true of all places. I think we must consider the question of uniting these federal enterprises, with a view to cutting expenses, primarily on managerial personnel. At any rate, we could do this within federal districts. I’ll expect the Transportation Ministry to draft proposals on this score.

Second, this year we have launched a programme to subsidise interregional flights in the North-Western, Siberian, Ural and Far Eastern federal districts. Only flights to places without railway transportation – 81 all in all – have been discounted under the programme. The budget has allocated one billion roubles toward this. Regrettably, out of 30 regions covered by the programme (I spoke about this at the meeting in the Far East) only six used it. I believe the Transportation Ministry should analyse why this has happened and submit proposals on this score. If this programme is not useful, let’s shut it down and reserve the federal funds for other purposes. If we need this programme, the question is why other regions are not involved.

The third problem that is, of course, really serious and important at the moment concerns the outdated fleet and our inability to update it soon. Let me remind you that on January 1, 2012, a special programme was launched to subsidise aircraft. The subsidies amount to 15% to 30% of the cost of the aircraft, with the rate depending on their type, production year and characteristics. This year we have allocated nearly two billion roubles for the programme. We are thinking about the same amount next year and 2.4 billion roubles in 2014. Obviously, the mechanism was popular, unlike the measures regarding the discounted routes. There have been requests for the purchase of 50 planes, with total subsidies of 1.2 billion roubles. The subsidies have already been provided for seven planes. The terms are well known. The subsidies are provided to the companies that lease aircraft that have been in operation for up to ten years, carry up to 55 passengers, with any type of engine; and up to 72 passengers, with a turboprop engine.

Moreover, as you remember, I issued instructions to exempt civil aircraft of smaller capacity (up to 72 seats) from import customs duties for a certain period of time and within an agreed quota. The Ministry of Economic Development was supposed to deal with this and I would like to know what has been done. I understand that we need our own plane, it is obvious. While we don’t have it, it is possible to lease foreign planes, but we need our own plane. We are told that by grounding outdated Russian planes we are clearing the way for the purchase of foreign planes. One can look at it this way, but human life is our priority, not any other considerations, not even support for our domestic manufacturers. This is the most important thing.

Preferential terms for the purchase of foreign aircraft must be only a temporary measure. Considering that we are working to develop an adequate domestic regional aviation market we should think about producing a Russian short-distance aircraft – either using our own capacities, which, in my opinion, is so far unlikely (and I would be happy to hear anything that would persuade me otherwise), or together with a world-class foreign producer. I think the Ministry of Industry and Trade, the UAC and the association of air carriers could handle this. By the way, while developing short-distance aviation, we must continue to consolidate the opportunities of the airlines, to merge airlines (where it is reasonable), not to split them. Even if we come to lease new aircraft of small capacity I would recommend that you use the approaches we discussed as a guideline.

There is one more issue – rent for the land occupied by airfields. Currently, the rent is calculated based on the traffic rather than on the market price. This approach could be also used to calculate the rent for the land comprising infrastructure such as landing grounds and helipads. This would make it possible to hold back the increase in airport charges and fees. I suggest that the Economic Development Ministry work thoroughly on this issue.

I suppose there are other issues as well. Some of our colleagues present here – from the federal centre as well as from republics, territories and regions – took time to travel to this meeting to discuss them, as they have experienced in full measure the impact of the decline in the domestic air transit. We discussed it as we were flying here. There have certainly been some improvements because, after all, as my colleagues reported, as many as 20 new domestic routes have been launched recently. However, it is not a sufficient number considering the developments in this country.

Now I suggest we discuss the issue on the agenda. Afterwards, I will comment on both the protocol decision and some other issues. Mr Sokolov, please take the floor.

Maxim Sokolov (Minister of Transport): Thank you. Mr Medvedev, colleagues. In accordance with the government policy regarding air operations up to 2020, which was approved by you, Mr Medvedev, this April, and the transport strategy of the Russian Federation, one of the priority areas of air transport policy is the development of domestic and short-distance routes (specifically, in the Far North, Siberia, the Far East and other remote areas) as well as modernisation of the relevant transport infrastructure in these areas.

In order for these priorities to be realised, the Ministry of Transport outlined the main objectives of the development of domestic air transit. These are: ensuring the transport accessibility of the Russian regions, increasing air mobility of the people and facilitating business activity. We believe these objectives can be achieved if the following challenges are met: ensuring the smooth operation and development of the domestic ground infrastructure, improving the funding mechanisms of the budgets of different levels, developing and upgrading the aircraft fleet, cutting the costs of domestic operations, and improving government regulations in this area. Developing each area, as I said, is an indispensable condition for the development of the regional domestic aviation in general.

Currently, there are 1,337 domestic air routes in Russia, including 153 (just over 10%) between Moscow and St Petersburg. These air routes are operated by 62 airlines, one third of which operate only regional flights. For the sake of comparison, in 1990 there were nearly 5,000 routes.

Nearly 31 million passengers travelled on domestic flights last year, which makes…

Dmitry Medvedev: 5,000 air routes operated by one company? Was there only one carrier?

Maxim Sokolov: Yes, Aeroflot was the only carrier.

Dmitry Medvedev: One.

Maxim Sokolov: Thirty-one million passengers have been carried which is almost 50% (48.3% to be exact) of all passengers carried by Russian airlines. That’s 12% more than in 2011. More than 85% of the passengers were carried along the routes related exclusively to Moscow or St Petersburg. As you have already mentioned, regional and local transport accounts for only 4.5 million passengers. You have already concluded that this is stagnation. Since (that’s an additional figure) in 2003 we moved more passengers along local and regional routes than in 2010, we can conclude that these routes are indeed no longer capable of generating the passenger traffic big enough to let us at least break even. This leads to high air travel costs and, accordingly, high ticket prices, because the unit costs involved in the airport network maintenance and the use of aircraft are very large. These regional and local flights mostly provide social services in nature and are not commercially viable. These routes have no competition, and, accordingly, transportation costs are fairly high. I’ll give you several numbers as an example: the average cost of air travel per one passenger-kilometre on regional airlines is four times higher than on major routes. The round trip economy class tariff on intra-regional lines averages 23,000 roubles, or even 22,000-23,000 roubles one way which is almost as much as the average monthly salary in our country. Why is this happening? The analysis of the Russian airlines’ cost structure shows that transport costs are affected by a number of intra-industry and external factors. The main intra-industry factor has to do with the cost of airport services. This is closely related to regional airlines, the ones that are involved in regional transport services, so to speak. The decisions to change the maximum level of airport charges and tariffs taken in 2011 helped stabilise airline expenses on services at an average level of 8.2%. If these decisions haven’t been taken, the expenses would have been even greater.

The most significant factors behind the growth of airport charges include costs associated with the use of federal property that is not subject to privatisation, including the rent paid for the land (you have issued relevant instructions, thank you. It was one of our proposals and it is fully consistent with the policy suggested by the Ministry of Transport), high degrees of wear and tear of the airfield equipment, requirements for flight safety without taking into account the intensity of flights at the airport. These factors result in a substantial increase in take-off/landing charges within 5% (2011). With regard to the second factor, which is flight safety, it’s almost 20%.

Therefore, the financial burden on regional airlines can be reduced primarily through state support for this type of transport, as well as by creating a helpful environment for the airlines involved in regional and local traffic.

In compliance with the presidential instruction, the Ministry of Transport and the Russian government have approved the Concept for the Development of the Airfield and Airport Network to 2020, which identified mechanisms for forming the national core airport network. The adoption of this concept in 2008 and of appropriate measures was due to a sharp reduction in the number of operating airports. The slide shows that the number of airports in Russia decreased from 1,300 to almost 315 over the past 20 years. Since 2002, more than 145 billion roubles from the federal budget have been used to support the airfield infrastructure in Russia, which has slowed down the contraction of the airfield network. Today, airports and airfields are no longer put out of operation. In the worst-case scenarios, they continue to function as landing strips. In all, there are about 1,600 such airfields and landing strips.

Federal state-owned enterprises are being created in order to preserve and develop local and regional air traffic in the Far North. Mr Medvedev, you have said that six federal state-owned enterprises have been established at 50 regional and local airports, which made it possible to bring the regulatory status of airports in line with the certification requirements, buy new airfield equipment, and carry out major repair and renovation projects. I recently came back from the Teply Klyuch airport located on the border of Yakutia and the Magadan Region where I saw that even in such a relatively remote location the condition of the airport equipment complies with regulatory requirements.

The creation of the federal state-owned enterprises restrains the growth of passenger fares on regional and local airlines and forms the basis for developing the local transport. Almost 2.5 billion roubles have been allocated from the federal budget to finance state-owned enterprises.

Another 125 million roubles have been allocated from the federal budget to provide state support to organisations that are not federal state-owned enterprises (their number is declining), but are still using the airfields. These measures of state support have been carried out since 2008 and are designed to maintain the airfield infrastructure in its present state.

Comprehensive state support of the regional transport industry also included measures to support airlines by reducing passenger fares. In pursuance of your, Mr Medvedev, instruction regarding the adoption of such measures, the government decision governing the rules for the provision and distribution of federal subsidies was approved in late December. As you mentioned, one billion roubles have been allocated. These rules, similar to the rules governing subsidies to airline passengers from the Far East and Siberia, have certain limitations that include the admission of passengers under 23 and of retirement age. In addition, there were a time limit in effect from April 1 to October 31. The list of itineraries included exclusively the ones between destinations without rail service. There were only 81 such itineraries in four federal areas, 162 accordingly, if you count in return flights.

We planned that the co-financing from regional budgets will be based on a 50/50 matching rule, and subsidies will cover 50% of the ticket price. However, as we analysed the progress in executing this type of expenditure, we found out that, first not all entities have joined this programme, as they are to consider the corresponding expenditure commitments. The government’s resolution on this subsidy was adopted only on December 31, 2011. On the other hand, we have to remember that the current, effective subsidy for supporting long-haul airlines was not developing very effectively at first, and only during the second year both passengers and air carriers demonstrated full interest in its implementation. As you have mentioned, 30 regions have submitted nine applications, with implied distribution of subsidies worth 636 million roubles out of 1 billion. 90% of financing will go to the Far Eastern Federal District.

Currently, allocation of finances is envisaged only for four entities, with agreements signed with them. Another two entities are concluding agreements, while one entity has not yet taken a decision due to a disagreement on the volume of co-financing, as the allocations have to correspond to its budget capacity. This is the issue we will solve together with the Ministry of Finance in accordance with the order you gave in Vladivostok. Now, the draft resolution has been developed on introducing amendments into the regulations for distributing this subsidy, with proposed co-financing from the government amounting to at least 50%.

Dmitry Medvedev: So what are your proposals? Should this programme be continued? Only four regions receive subsidies, and this is wrong.

Maxim Sokolov: Yes, we believe that it is important to continue this programme both next year and further. Also, we believe it’s advisable to consider lifting passenger age restrictions for the passenger traffic to include various age groups and correspond to the subsidy season. 

Dmitry Medvedev: But are regions ready to participate in the programme? It does not sound right when we offer them money and they reject it due to the reasons you have mentioned.

Maxim Sokolov: I would like to propose considering applying this support measure not only to four federal districts but also other districts. At the meeting on transport infrastructure development in the Volga Federal District (I will elaborate on this later), all governors present there told me they are ready and eager to participate in co-financing this subsidy.     

Dmitry Medvedev: Well, okay, then we will take final decisions.

Maxim Sokolov: We also deem it necessary to consider the proposals from the entities when developing the list of subsidised routes. Regarding the Far East, not all entities agreed with the routes proposed by the Ministry of Transport for subsidies.

Another aim of regional aviation development (next slide please) is creating conditions for boosting people’s business activities in all regions of Russia. The example here is the Volga Federal District, where there is a programme for regional traffic development. The Volga Federal District is one of the most industrially developed territories, with a high number of high-tech production facilities, high population density and a developed airport network – but at the same time, in terms of flights, this mobility is extremely small, lower than in other districts of the Russian Federation. The world experience points to the need to have a legal public service obligation on socially meaningful flights. Legally, one of the main forms of involving airlines in such flights is an exclusive right to use an air route for three years. Financially, airlines performing such flights may be reimbursed for their expenses from federal subsidies and other sources. In Russia, regional budgets are the second source. In the United States, state support is comparable with the Russian figures and amounted to $143 million this year. As I said, the United States has this programme in 32 states and 153 locations. If our proposals are reviewed and backed, we will consider the US experience in improving our own programmes on this score.

The available aircraft fleet is one of the most important factors in the effectiveness of regional and local flights. Eventually, this factor is also making them affordable. In 2012 we had 340 regional passenger aircraft – 244 of domestic and 96 of foreign make. Since July 1, when norms on mandatory installation of systems of mobile communication and warning about the dangerous proximity between aircraft were introduced, this problem has become especially urgent because the equipment of many aircraft with these systems is economically pointless.

As for support, you’ve already noted that the federal budget has allocated almost two billion roubles to subsidise leasing payments – 1.9 billion in 2012 and these subsidies are being transferred to airlines. They have already received 330 million roubles worth of subsidies for purchasing seven aircraft. All in all, they will receive 1.212 billion roubles worth of subsidies for the purchase of 50 aircraft. This measure will allow airlines to purchase 117 aircraft up to 2014.

Dmitry Medvedev: Do we know how many aircraft we should have? In order to fly in Russia like we did in the Soviet Union – with the same intensity and number of cities linked by a system of regional and interregional flights.

Maxim Sokolov: As I said, we then had almost 5,000 regional routes and of course we will need… I can’t tell you how many regional aircraft we need…

Dmitry Medvedev: Mr Sokolov, you should calculate how many so that we understand what we need. I am not saying we must do this by all means but we should try to change things for the better. We must simply understand what we should strive for and what ultimate goal we should have. Maybe, this is not even urgent for some places because life has changed and people travel by car. In the past we had almost no cars but look at the street traffic now. We are also developing railways. We must simply determine the threshold or rather the ceiling.

Maxim Sokolov: Will do, Mr Medvdev. We will certainly calculate everything, all the more so since we met with business people several times while preparing for this meeting. The first thing we want to do is to make a modern model of regional flights that would meet the requirements of regions, passengers and entrepreneurs.

As for our proposals, we think it is necessary to amend the law on transportation safety in airports that are not busy. Safety must be guaranteed by all means but these requirements for regional and local airports and landing sites should be minimal and correspond to real threats. Today, these airports and airlines cannot afford to pay for the maintenance of these airfields.

To encourage regional and local airlines, we should use a system of discounts on airport fees and duties when they start new routes. This system should also apply to the airports in new destinations. In this context, the Ministry of Transport has endorsed and registered at the Ministry of Justice a relevant order to discount navigational airport duties for servicing aircraft and simplify procedures in the flight information areas and Class G airspace. This is a legal innovation. The Ministry of Justice registered it last Friday.

To ensure a similar approach to lease rates, we will study your instruction with the Ministry of Economic Development. We also deem it expedient to endorse a normative legal act to regulate lease rates on land plots.

The implementation of the measures outlined in the report (we have proposed a number of measures, which I mentioned in my speech) along with the measures implemented by the regions, will help achieve a breakthrough in the development of regional and local transport, ensure affordable air fares, and come close to the volume of shipments in 1990, at least in terms of the efficiency of regional aviation. Thank you.

Dmitry Medvedev: Thank you, Mr Sokolov. But I would still like to understand the ministry’s position on aviation. Once again, tell us briefly whether, in your opinion, we should focus on leasing aircraft or whether we should concentrate on creating our own aircraft.   

Maxim Sokolov: Unfortunately, we don’t currently have any Russian-made aircraft. But for such aircraft to emerge, we need to create a functioning regional air transport system. This system has to be developed. And at present we can probably only develop it if we purchase aircraft from abroad, with a few exceptions.

In Yakutia, they are using An-140's, there are also some other Russian-made aircraft, but most of our planes are obsolete and need to be replaced. Therefore, our goal should be to develop the regional aviation market and simultaneously channel the results of this development into producing Russian aircraft. But until we create them, we obviously need to use all possible means of support, including leasing (when we have our own aircraft, we will stop subsidising leasing and will switch to supporting domestic aircraft instead) and subsidies for regional aviation and specific airlines.  

Dmitry Medvedev: All right, thank you. Some colleagues also wanted to speak on the issue. Please speak briefly, since the main report has already been delivered. Let’s start with Mr Babich, since we have discussed this subject with him. Go ahead please. 

Mikhail Babich (Presidential Plenipotentiary Envoy to the Volga Federal District): Thank you, Mr Medvedev. The topic of today’s meetings is very relevant for the Volga Federal District.

Immediately after receiving the presidential and government assignments, in November-December of last year we created a working group in the district, whose main task is to come up with a set of measures to develop regional and local passenger aviation, including considering the possibility of creating domestic production of aircraft of that class. The working group has prepared a draft strategy for the development of regional aviation through to 2025. The implementation of the strategy will have a significant impact on the regional economies and will enhance their investment attractiveness. I just want to say a few words, Mr Prime Minister, on the vital importance of this strategy for our district.

The population of the Volga Federal District is almost 30 million people, which accounts for 21% of the country’s population. Of this number, 16 million people are economically active. The district includes five cities with more than one million inhabitants each, and six large regions with a population of over 2.5 million people. The district accounts for over 15% of Russia’s GDP, it is home to a quarter of the country’s industrial facilities, including 85% of the Russian automobile industry, 65% of the aviation industry, 40% of the petrochemical industry, 30% of shipbuilding and 30% of the defence industry. In other words, the district has an enormous concentration of intellectual resources and hi-tech industries.

The Volga region enjoys a unique geographic location: international transport corridors pass through it, including the North-South and East-West corridors, connecting Siberia, the Far East and the East Asian countries with the European part of Russia and the rest of Europe. The district is also home to the nation's largest aircraft manufacturing complex, which includes 64 companies employing more than 80,000 workers, as well as six colleges and universities focused on the aviation industry. In other words, the district has an exceptionally highly-skilled workforce, which is employed in high-tech industries and for whom mobility and accessibility are the basis for development.

Dmitry Medvedev: Mr Babich, we all understand that this is very important, so no additional convincing is necessary. No one present here thinks that this issue is not important and needs to be abandoned. Please formulate your main proposals regarding the aircraft and other issues.

Mikhail Babich: I’ll cite a few figures literally to answer your question of how many aircraft we need and what the situation looks like. In 1991 (as can be seen from the slide) there were 1.8 million trips on regional routes in the district, or in the same territory. In 2011, we carried just 39,000 passengers. And if today the district accounts for 21% of the country’s population, its air traffic totals only 7% of all passenger traffic. True, it has capacity to grow. But understandably we cannot, as you said, reach 100% of what we had in 1990-1991, the difference is a lot.

So the programmes being implemented which Mr Sokolov described in detail are undoubtedly important today, but they are socially-oriented and meant for certain groups of the population. Now we are suggesting that it is time for the gainfully occupied population to travel between the country’s basic industrial centres.

Please show slide No. 6 with the programme we have worked out. Its indicators are as follows: while the district currently operates only five regional air routes, our initial analysis shows we need 56 routes, including 36 direct routes and 20 transfer routes through our hub airports of Samara, Kazan and Ufa, for a total of 56. The details are these: a one-leg distance of between 300 km and 800 km, a seat occupancy rate of 75%, and 150 average operational hours per aircraft a month to remain profitable after subsidisation. For the programme to get off the ground we require the following number of aircraft… Currently we are carrying 40,000 people, but with this programme in action, we would be transporting 170,000 people a year. Our estimates require that we have 18 aircraft with a seating capacity of 8 to 14 passengers each. These are the figures.

Dmitry Medvedev: Will you please repeat? If I understand you correctly, the district needs 18 aircraft with that capacity?

Mikhail Babich: Yes, precisely 18 aircraft. The carriage load we expect to be profitable with the subsidies anticipated requires only 18 planes. So if we see it in terms of the country… Mr Sokolov and I calculated that the overall figure for Russia as a whole should be 150 or so aircraft. This number will meet our requirements.

Dmitry Medvedev: But that is an approximate figure.

Mikhail Babich: Yes, but there is more. Today I’m speaking of 56 routes for the district; potentially there could be 210, a realistic figure by all estimates and accounts.

Dmitry Medvedev: Would these be sold out flights? 

Mikhail Babich: We are assuming a 75% load… Two factors are at work here: the type of the aircraft, or its capacity, and the regularity of service. As we concluded, if a route is only offered once or twice a week, people won’t use the service, and the market will not change, but if flights are regular, once a day or, on commercially attractive routes, two or three times a day, then it will be more practical than other kinds of transport.

Dmitry Medvedev: Have you thought about tentative fares?

Mikhail Babich: Yes, I will speak about them when the next slide is shown. Here is a table showing all the calculations, but I won’t go into details. We have here 170,000 passengers on 291 return flights a week. We calculated these figures ourselves and then ran them past the Ministry of Industry and the Ministry of Transport to coordinate with them.

Regarding the fares. What were our guidelines? For passengers to prefer flying to other kinds of transportation, the price must be competitive, aside from availability of service, logistics and other advantages. One hour of flying these airplanes costs 6,500 roubles. This means that for a trip to be economically feasible the fare should not be higher than 3,000 roubles per flying hour, which requires a 50% subsidy. It is only at this point that the air fare becomes competitive with other kinds of transport and brings with it time savings, better logistics, service availability and other benefits.

Today the subsidy accounts for 51% to 52% of the fare, but spread over the years it will drop to 10% by 2025 as passenger traffic grows and overhead declines.

Two subsidy plans are being offered. One is being used now and is regulated by Resolution No. 1211, with subsidies coming both from the federal and regional budgets under a scheme recommended by Resolution No. 1212. In this case, the federal budget allocates the district only 332 million roubles. In absolute figures, this means these are the figures.

The first option is to have subsidies. Judging from our experience in the Far East, the service proved unpopular. If everything is subsidised by the federal budget, let's say in the first and the second year, the programme will require 714 million roubles for the entire district.

The airport network in the district is not among the restricting factors. As Mr Sokolov noted, we have 21 airports, 17 of which are included in the national airport network. Now we are suggesting a programme for 15 airports that does not require any investments. We only need links between the major industrial centres of the country.

Speaking about the fleet – perhaps, the most important issue – I will skip the foreign experience that Mr Sokolov has spoken about in detail. As far as the fleet is concerned, the situation is as follows. Indeed, there are not many planes that would comply with all the criteria. We have drafted design criteria for a passenger aircraft of this quality. Here they are: it must develop a minimum speed of 400 kmph, carry 14 passengers, it must be able to operate on unequipped airstrips, it must have two engines, cost no more than 70 million roubles and have some other characteristics that you can find here. Apparently, we have some planes in mind but I will propose that this point be included in the draft protocol directive. We have the Gzhel, a plane that was designed at the Sokol plant in Nizhny Novgorod. We have the Rysachok designed at Aviacor, which is now being certified. It is a plane for ten passengers. Experts have different views of how resilient these planes are. However, we have two, they were designed in our district and I have submitted proposals on them. Apart from that, we have two foreign models. They are the Pilatus by a well-known manufacturer, Dectra, which many of our officials fly with, and the Vector, which is in development in the Czech Republic.

So, this is the Pilatus, Mr Medvedev. What advantages does it have? It has been deployed in Russia a lot. It can be converted into a cargo plane as well as an ambulance plane and a plane for specific purposes.

Dmitry Medvedev: How much does it cost?

Mikhail Babich: It costs around $4.5 million. The price is in fact its disadvantage. Let me remind you that it is an airtight plane that, with all its characteristics, would be in high demand today. The price is the factor that has restrained us from negotiating production of the aircraft in Russia with its owner.

Even though the meeting has not finished, it has already achieved a certain result, because for the past three days representatives of the owner have been bombarding us with emails and calls saying they are ready to begin talks. It is a very good step forward.

Now for the Vector planes. Please open the next slide. It is produced in the Czech Republic. Its competitive advantage is obvious: two engines, a passenger capacity of 9 or 14 seats; it can reach speeds of 400-410 kmph. We have been discussing the purchase since 2010 (which is a big plus). The owner is ready to localise it within our production capacities. I’m talking about the Ulyanovsk port type special economic area. These talks are nearing their successful completion. So, if we receive any particular instructions in this respect… The Ministry of Transport and the Ministry of Industry and Trade know the details very well. They are ready to proceed with the talks. The company is ready to hand over up to 100% shares of the new enterprise to the Russian Federation and our domestic owners. This plane has the potential for success on the international markets, according to our experts. Moreover, it is a basis for the design of a similar class of aircraft that can accommodate a larger number of passengers.

Dmitry Medvedev: It’s written here that a class has not yet launched, or even been certified.

Mikhail Babich: Right, the Vector has a different problem than the Pilatus. It is still being certified. Its international certification for Europe will finish by late 2013. If we arrange parallel domestic certification, the aircraft will be certified in Russia at about the same time, and the effort will cost a negligible sum – about 300,000 roubles.

Dmitry Medvedev: When will this be finished, you say? In 2014?

Mikhail Babich: By late 2013. So, we can have the first five Vectors in 2014 and start manufacturing 60 aircraft per year in 2015. Production localisation will reach at 10% during the first year and hit 70-80% in 2017 or 2018. This is what is being said in the negotiations.

As for our proposals, Mr Medvedev, I would like to complement you on your draft instructions if you have no objections.

Dmitry Medvedev: You’re welcome.

Mikhail Babich: In Paragraph 6, you instruct the Ministry of Transport, in team with the Ministry of Economic Development, the Ministry of Finance and the Ministry of Regional Development to submit mutually coordinated proposals concerning the implementation of a flagship regional air transport project in the Volga Federal District within budget allocations. We propose adding a sentence about government shipment contracts with airlines using Russian-manufactured planes. I mean to say that Russian manufacturers should be supported at this stage, when we are just launching the subsidy programme.

Dmitry Medvedev: I see.

Mikhail Babich: True, Russian planes might be of a somewhat inferior quality, but at least they are still there now – I mean the An-24, An-28 and Yak-40. Their use requires the smallest possible investment, and we might subsidise shipments made by these planes. We also propose a government resolution on localising assembly work, which is mentioned in Paragraph 12 of your instructions. I think that it should be supplemented with an emphasis on production in the Ulyanovsk port-type special economic zone. It has every objective prerequisite for the job, and the relevant economic prerequisites have a legislative basis. The necessary work habits and think tanks are there, as well as a sufficient workforce... So, it would be surprising to place this production somewhere else.

My last request is to supplement the draft instructions with one very essential point that the governors will insist on. We need should be an order for the Ministry of Transport and the Ministry of Industry and Trade to analyse the present status of  projects for the production of Russian planes for local airlines and special-purpose craft, including Aviacor’s Rysachok and Sokol’s Gzhel, and to make coordinated proposals on their further realisation. The planes are available and we only need a final expert evaluation and inventory check of these projects.

Dmitry Medvedev: Good, thank you.

Mikhail Babich: Thank you.

Dmitry Medvedev: The Ministry of Industry and Trade should voice its position, and then we will give the floor to company managers and regional governors. Mr Slyusar, please go ahead.

Yury Slyusar (Deputy Minister of Trade and Industry): Mr Medvedev, I want to start where Mr Sokolov finished off – on analyses of air routes and contracts... Proceeding from these routes and contracts, we should compile a consolidated contract as the starting point for the blueprints for the existing fleet's production development and modernisation. This is a matter of principle for us. We have an explicit picture of the Volga Federal District. Now, we want a similarly extensive nationwide picture. I mean we want to know how many aircraft we must supply, to whom, when, on what terms, at what price, and what these aircraft should be.

As for our work, the federal targeted programme for civil aviation technology development envisages funding the design of a cutting-edge platform based on a pioneer aerodynamic scheme with a new engine, made of the most advanced materials, and mainly composite materials. I fully agree with you that this is a job requiring extensive transnational cooperation. Such teamwork will help us to address at least three problems – establishing a technological exchange with our partners, extending the market, as such planes are designed for the global and not the domestic market, and diversifying investment risks. When we reach the design and development stage, we will look for a partner and finish the job together.

As for our medium-term prospects, we propose working towards two goals at once. The first is the promotion of Russian-based projects to meet the demands of airlines. We might hold a project contest at the R&D or the testing stage. This concerns Rysachok, Gzhel, Accord and other aircraft... There is also a pilot project advanced by the Kazan aircraft company. You saw it when you visited the city. The company employs the gifted individuals fellows who designed the MVEN-2 agricultural plane. This is a sensational endeavour with a fuselage made entirely of composite materials.

Other goals concern localisation. We need to make specific demands and to invite our partners to establish assembly plants on concrete terms. Such plants might eventually become the basis for the further development of Russian aircraft design and production.

As for short-term prospects and regional demands, we propose modernising the available An-2 fleet. The planes are to receive state-of-the-art US engines, new avionics, and a new service airframe life. The project is being implemented and is nearing completion from a technological point of view. This is the quickest and most feasible way to meet current demands.

Dmitry Medvedev: What will it cost to revive the An-2 on a completely new basis?

Yury Slyusar: It will be quite a new aircraft.

Dmitry Medvedev: With an old frame and new avionics.

Yury Slyusar: Right. We evaluate this upgrade at $500,000-$800,000. A new engine costs $400,000 and a good second-hand engine, meeting necessary requirements costs roughly $300,000. Pilots, technicians and landing strips for this class of aircraft can be found in every town. We Russians have ample experience with An-2s. Now, there are about 2,000 such aircraft in our fleet.

Dmitry Medvedev: It is too early, I’m afraid, to speak about pilots and technicians. Will they cope if the planes have new engines and new electronic equipment?

Yury Slyusar: It’s easier for them to get accustomed to new engines than switch to the Cessna.

Dmitry Medvedev: Possibly. I don’t know.

Yury Slyusar: Yes, that’s what we have analysed. The Defence and Emergencies ministries are also interested in the programme. They want to order up to 200 planes or put new engines on the aircraft that they have now. Several thousand An-2s are used all over the world with new engines and a prolonged service life. They are quite up to world standards and are among the most economically effective planes.

Dmitry Medvedev: How many An-2s are there in Russia?

Yury Slyusar: About 2,000 have been registered – 1,400 in civil aviation and 600-800 on the state register.

Dmitry Medvedev: I see.

Yury Slyusar: Thus, we suggest making the modernisation of An-2s and Yak-40s among  a top priority. Regrettably, we have a problem with the Antonov designers (Antonov National Amalgamation state aircraft-building corporation). The problem concerns all of the Antonov-designed planes from An-2 to An-124. Our partnership leaves much to be desired. They charge us enormous sums for the slightest modernisation and modification work, so we are always in a deadlock.

We have made a proposal and asked for support. As the ICAO (International Civil Aviation Organisation) rules have it, not only the designer and the manufacturer, but also the user has the right to make minor changes to the aircraft design, including changing the engine, etc. This rule is valid everywhere. Ukraine is no exception. It remakes Russian helicopters against the designer's wishes.

We have no such rules, so we ask you to instruct us, the Ministry of Transport and the International Aviation Committee to compile them. With these regulations, we would be able to supplement the class certificate for the An-124 and all of the Antonov-designed aircraft and to make improvements independently without the company’s authorisation. This is widespread practice in Europe and America... Russia is the only country whose federal air regulations do not envisage such action. Please resolve this matter urgently. It will help us with the An-2 project and with using all Antonov planes.

Dmitry Medvedev: I see. Thank you.

Now, let’s begin our discussion.


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