Airplanes Give Way to Submarines

On Thursday, the Center of the Analysis of Strategies and Technologies (CAST), an independent Russian analytical organization, presented its annual rating of companies with largest military production. Their experts say that, in 2004, the Russian arms industry became export-oriented. In spite of the fact that the state arms order has been growing in recent years, the Russian armed forces have not increased purchases of military technology and weapons.

The CAST rating is considered the most exact evaluation of arms in Russia. It is based mainly on data from the producers themselves. In the 2004 rating, CAST used its own estimates in only 2 of 20 instances.

According to CAST estimates, the growth of the Russian arms industry has slowed down. Production at the ten leading companies last year amounted to $5.8 billion (see table). That is only $100 million more than in 2003. Center experts think that that situation was due to the fact that the Russian arms industry maintains a clear export orientation. In 2004, Russia set another record for arms and military technology export. The value of its deliveries came to about $5.7 billion, $300 million higher than the last record, set in 2003.

At the same time, there are no signs that the ever growing domestic state order, which has already met the indicators for export, has any financial effect on the arms companies. “The problem boils down to the following question. Where is the state order hiding?'” Konstantin Makienko, deputy director of CAST told Kommersant. “Two reasons can be suggested. Either all the funds are going to maintain the nuclear forces and the production of the Topol and Bulava ballistic missiles, or all the funds allotted from the budget disappear within the Defense Ministry. Only crumbs make it from the state defense order to the companies.”

In addition, CAST experts say, the share of civil production at defense enterprises is still too small. That is why production growth goes at a snail's pace. “The dynamism of a company director can be judged by the volume of civilian production,” Makienko said. “Uralvagonzavod is a positive example in this respect, but only because of its monopoly on the production of railway rolling stock.” Russian Railways has been updating its car for several years, which has led to a steep rise in civilian production at Uralvagonzavod. “The three Russian natural monopolies, Russian Railways, Gazprom and RAO UES of Russia, could load up the better half of the Russian arms industries with orders,” Makienko said. “But, except for Russian Railways, they show no intention of doing so.”

CAST experts noted in their analysis of the ten biggest Russian military producers that Sukhoi, Irkut and MiG aviation construction companies maintained their lead, as did the Aerospace Equipment Co., which produces parts for them, and the Ufa Installations Co. and Salyut Moscow Machine Building Enterprise engine builders. However, engine production began to decline in 2004. CAST experts expect tendency that to lead to a recession in the aviation construction industry in 2005. The center says that, this year, the St. Petersburg Admiralty Wharfs Co. will move into first place with a large order from China for submarines.