BMI's Executive Summary

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Russia's defence exports rose considerably in 2007 due to a number of high-profile orders secured with Venezuela, Iran, India, Algeria and most recently Indonesia. In the fourth quarter of 2007, Indonesia secured a US$1bn loan from a Russian bank to purchase six Sukhoi fighter aircraft. It is probable that Indonesia will have to request additional finance from overseas banks given that the defence budget is small compared to its relatively ambitious procurement programme. The budget remains under 1% of GDP, despite the 13% increase from the 2006 to the 2007 general budget. However, despite the boom in overseas demand for Russian defence products, there are obstacles to the Russian industry benefiting from the deals. It is estimated that Russia may require up to 100 patents to fully protect its defence exports, but there are currently only 15 defence systems that are under patent protection. Consequently, Russia's defence industry may be in danger of losing between US$5bn-$6bn per annum due to a failure to patent military hardware that is regularly exported.

Other defence industry developments in 2007 include the Russian government confirming plans to establish three shipyard holding companies. The firms have not been selected yet but some have been mentioned, namely Severnaya Verf and Baltiisky Zavod, which are majority-owned by Mezhprombank through United Industrial Corporation. The Kalingrad-based Yantar shipyard was also named as a possible candidate. The selected companies will cover a range of production lines, including naval ship and submarine production into a streamlined process. In Q307, Sukhoi Aviation and the Italian Aeronautica signed a US$25mn contract to jointly produce commercial aircraft. In recent years Sukhoi has managed to corner much of the Asia Pacific market, with significant orders from Indonesia. Indeed, following the success of Sukhoi-designed jets, the Russian aviation industry has managed to establish itself as a principal player in the global US$500bn military fighter and transport plane market. The Sukhoi-Aeronautica contract represents one of the first joint ventures into commercial aircraft.

Contents

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Chapter 1 - Executive Summary

SWOT Analysis

Russia Political Overview SWOT

Russia Security SWOT

Russia Defence Industry SWOT

Russia Business Environment SWOT

Russia Economic SWOT

Chapter 2 - Political Overview

Internal Political Outlook

Chapter 3 - Security Risk Ratings

BMI’s Security Ratings

Table: Regional Security Ratings

Table: State Terrorism Vulnerability Index

Europe Regional Security Risk Rating Q406

Russia Terrorism Risk

Russia Physical Safety Risk

Russia Conflict Risk

Chapter 4 - Security Overview

Internal Security Situation

Table: Russia Insurgent Groups

Chechnya

External Security Situation

Chapter 5 - Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2005

Current Strength

Modernising The Military

Budget Issues

Historical Strength

International Deployments

Table: Russia Foreign Deployments

Weapons Of Mass Destruction

Chapter 6 - Market Overview

Restructuring The Russian Defence Industry

Industry Trends And Developments

Table: Key Players – Russia Defence Sector (2005)

Arms Trade Overview

Procurement Trends And Developments

Chapter 7 - Industry Forecast Scenario

Table: Russia Defence Sector – Army Enlargements

Table: Russia Defence Sector – Government Expenditure

Chapter 8 - Macroeconomic Forecast Scenario

Table: Growth And Output

Private Demand To Remain Buoyant

Key Risks to BMI’s Forecast Scenario

Chapter 9 - Company Profiles

Sukhoi Aviation Corporation

Uralvagonzavod

Irkut

Russian Aircraft Corporation MiG (RSK MiG)

Kazan Helicopters

Ulan-Ude Aviation Plant

Rosoboronexport

Chapter 10 - BMI Forecast Modelling

How we generate our industry forecasts

Defence Industry

Sources

Chapter 11 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for European Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's European Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: