Vladimir Putin's opening remarks:

Good afternoon ladies and gentlemen,

Here today, at the MAKS-2009 Airshow, we had another opportunity to be convinced of the serious potential of Russian aircraft engineering. A wide range of promising civilian, military aircraft and other equipment were presented, such as the Sukhoi Superjet, the Antonov-148, the Il-96-400 transport airplane, the four-plus generation multi-purpose fighters and other developments and systems.

We have singled out development of aircraft engineering, along with the space industry, shipbuilding and nuclear energy, as key priorities in Russia's industrial policy. Due to these specific industries, we expect a significant increase in the share of high-tech production in the Russian economy, thereby increasing the economy's sustainability and diversifying its exports.

This area has recently been seriously restructured, and fundamental decisions have been made as far as the "product line" of aircraft that Russian companies will manufacture. In doing so, the practical capabilities of our designers and companies were taken into account, as were the development prospects of domestic and foreign markets.

Regarding military aviation, it is one of the most important parts of the state armament programme, one which stipulates the qualitative development of the Russian Air Force. I would like to hear a separate report today on the progress of the fifth generation integrated combat system - the PAK-FA system. This is one of our priorities, work on which must certainly be provided with the necessary resources.

Starting in 2004, state financing for aviation increased 20-fold, I want to emphasize this and draw your attention to this, ladies and gentlemen. Not by a percentage, but 20 times over! Just this year, taking into account anti-crisis measures, we allocated another 80 billion roubles for these purposes.

The funds were spent on the purchase of Russian airplanes and subsidizing the expenses of technical upgrades for our companies. Around 35 billion roubles from the budget were allocated for increasing the authorized capital of key companies in the industry. These are the RSK Mig company, which received 15 billion roubles, the Chernyshev MMP company, which received 2.9 billion rubles, the Kazan Gorbunov Aircraft Production Association, which got 4.1 billion roubles; and Motopostroitel in Samara, which received 1.4 billion roubles. The annual allotment in authorized capital for UABC to build civilian aircraft is another six billion roubles.

I want to add that literally over the last few days, the Government has made a similar decision: 3.2 billion roubles from the state budget will be allocated for additional capitalization of the Sukhoi holding company. Today, we will also discuss the possibility - and I want to emphasize this - we will discuss the possibility of adding another 15 billion roubles to the capital of RSK Mig. We already gave 15 billion, and today we met with Mikhail Pogosyan and discussed this issue. He is in constant contact with Sberbank. We had already discussed this issue previously, when we gave 15 billion roubles, and we will discuss giving another 15 billion.

I would like to emphasize that in the previous years we bought, for all practical purposes, individual aircraft of the latest generations for our Air Force.

How many...? One? Two? Three? Five? At most, we purchased six aircraft per year. Last year, we switched to long-term contracts for the first time, and signed contracts for the purchase of 32 SU-34s. All in all, about 40 billion roubles were allocated for this purpose. Thirty-four MIG-29SMTs were bought for the total sum of 17 billion roubles.

Now, before our meeting, record contracts were signed here at MAKS for the purchase of 48 SU-35Ss, 12 SU-27SMs, and four SU-30M2s, for the total sum of over 80 billion roubles. The aircraft will be delivered until 2015. Obviously, this will allow us to equip our Air Force with the latest technology, and to keep our aircraft companies busy, which is always important, especially during the crisis.

At the same time, the aviation industry is going through uneasy times, to put it mildly. Its problems are not limited to the consequences of the economic downturn such as shrinking of the market, a shortage of loans, and finances in general. This is not the whole point. The economic difficulties have clearly revealed the industry's systemic problems. We have discussed them before more than once, but they are being resolved at an inadmissibly slow rate.

I mean inadequate quality of corporate management, high costs, and low economic efficiency of labour productivity. There are many examples.

It may seem strange, but a whole series of United Aircraft-Building Corporation (UABC) contracts for the delivery of aircraft both at home and abroad have brought only losses instead of profits.

I would like to ask UABC and relevant departments to analyse this situation in detail, and to submit proposals that would prevent such setbacks in the future.

The plans for the production of civilian aircraft are not being carried out. This applies not only to the present, but also to before the crisis.

Furthermore, aircraft construction has found itself in an extremely difficult financial predicament. Before coming here, we held two other meetings, trying to carefully analyse the financial situation. The total debt of UABC and its subsidiaries is more than 119-120 billion roubles. Moreover, there is a deficit of 64 billion, which is not guaranteed by their revenues or profits.

When the economic situation was good, the previously-made loans were supposed to be paid off by selling non-core assets, refinancing at lower interest rates, and stock floatation. Today, all these opportunities have been lost. They should have been used in time.

At the same time, it goes without saying that in light of this force majeure, it is necessary to draft a programme for financial stabilisation, and help aircraft builders to get rid of the so-called "toxic" debts. This programme of financial recovery should be submitted to the Government during the next month, or, at most, in a month and a half. In other words, you have the remaining time in August, and September, and I will expect your report by October 1. Mr Shuvalov, please invite all the interested parties, and draft the required proposals for me.

In addition to this, I would like you to prepare proposals for supporting the sale of domestic aircraft. I'm referring to the development of leasing, and promotion of exports. Today, VEB and the company that will produce Superjet have signed a relevant agreement for funding sales. This is an important step in the right direction.

In conclusion, I would like to warn you against the illusion that the state will endlessly cover losses, bail out companies, or correct mistakes by management.

Let me repeat that we intend to invest in aircraft construction, and will do so, but we need real results. I would like to emphasize that the industry must function in market conditions. We realize full well that the situation is difficult, and that your rivals in the world markets are enjoying direct support from their governments. However, to start with, we should not repeat the stupid mistakes of others, and we should work effectively. And, second, we cannot resort to this practice all the time. We can work effectively in this country, and we should achieve this by all means.

Funds from the budget are primarily designed to help the development of genuinely competitive companies, companies that can make money on the markets, generate and attract funds for their development and technical re-equipment, and fulfil important contracts both in Russia and abroad. This is the essence of our common strategic task.

I would like to repeat once again that we will definitely support aircraft construction. The Russian economy has no future without aviation, and it is impossible to secure defence capability without modern combat aviation. But this does not mean that this idea may be used to cover up lack of discipline or poor organisation of work. The departments in charge should closely monitor the operation of specific companies, and the performance of the industry as a whole.

Let's start our discussion.