Story ID: 531
Russia Rethinks Defense Modernization Spending Plans
By: Reuben F. Johnson
Caption: Economic pressure is prompting fresh concerns over the viability of Russia’s military investments
Word Count: 1227
Several years ago when then-Russian President Dmitri Medvedev announced the beginning of a modernization program for the Russian armed forces, many analysts voiced skepticism that it could be carried out successfully. At the time, there were two main reservations voiced by critics, including Russia’s then-finance minister Aleksei Kudrin.

One perceived problem was that total proposed spending of around $700 billion over a decade would simply be too much for Russian industry to absorb effectively over that period of time. This is largely due to the contraction of Russian industry over the previous two decades, and particularly through the disappearance of numerous second- and third-level component suppliers.

Officials from Russia’s Ministry of Trade and Industry, which has oversight for the defense industrial sector, stated more than once that if industrial enterprises were too overwhelmed by trying to manufacture too many weapons systems too fast, “the result will be an increase in prices and a drop in quality.”

Another issue was the steady decline of Russia’s world market share in defense exports, a revenue stream that has traditionally been relied upon to finance new weapon systems. As far back as 2009, Anatoliy Isaikin, the current director of Rosoboronexport, the state-run weapons export agency, told the Rossiiskaya Gazeta newspaper that a drop in research and development funding meant that Russia may soon “trade only in tank, ship and aircraft hulls,” with the consequence that the market for high-technology systems will be conceded to nations that are becoming more competitive with Russia in the world arms market.

 “The share of Russian research-intensive products in global exports was 6 percent in 1990, 1 percent in 2000 and 0.2 percent in 2008,” said Isaikin to illustrate his point. “The country spends on research and development four times less than Japan, three times less than Germany and two times less than the Czech Republic.”

More recently, pressures on the Russian defense industry have been compounded by factors such as declining oil revenues, the collapse in the value of Russia’s ruble currency and the impact of economic sanctions imposed in response to the military conflict in Ukraine. Last July, Medvedev, now Russia’s Prime Minister, insisted that these unforeseen events would not result in a reduction in the state defense orders that are the central element in Russia’s modernization of the nation's armed forces.

But, more recent developments suggest that “engaging in the Soviet-style method of trying to repeal the laws of economic reality by decree and declaring that there will be no cuts in weapons procurement has not produced magical results,” said a Russia-based defense analyst, speaking to AIN on condition of anonymity.

Two key Russian defense programs central to Russia’s military modernization plans are the Sukhoi T-50 and Su-35 fighters. And it remains to be seen whether the Russian government will stand by its earlier spending commitments to these programs.

On March 23, deputy defense armaments minister Yuri Borisov visited the Komsomolsk-na-Amure Aviation Production Association (Knaapo) plant that manufactures both aircraft, declaring that the facility is fully prepared to start series production in 2016.

However, he went on to point out that the defense ministry reserves the right to “re-evaluate” the number of units it intends to purchase and under what timeline. “Due to the newly-emerged economic conditions, our plans can be adjusted accordingly,” he said.  “A better approach now might be to hold the T-50 in reserve and move forward on this later while in the meantime getting as much as possible out of our four-plus generation [Su-30MK and Su-35] fighters.” 

Yuri Slyusar, who had only recently been appointed as the CEO of the United Aircraft Corporation (UAC), which owns Knaapo, said that the company agreed with the defense ministry’s position.

The military modernization plan was supposed to include the purchase of 52 T-50s, now being referred in the Russian military by the acronym of PFI (Perspective Frontline Fighter).  Originally, the Russian air force was due to receive eight aircraft per year in the 2016-2018 timeframe and then 14 more from 2019-2020.

According to a source close to the program and with direct knowledge of the current budget constraints, this schedule would have been feasible if Russia’s economic difficulties had not arisen. “The idea now is that as a first step we will sign a contract for a squadron of T-50s [12 aircraft],” he said.  “After this, we will take a decision as to how effective they are and how many more aircraft we can afford to take on.”

The six T-50 prototype aircraft that have been produced so far are being used for flight testing. Borisov said that the Russian air force would receive four more fighters to finish the flight tests. Aside from these aircraft, the Knaapo plant will build 14 multirole Su-35s and five Su-30MK2s by the end of 2015.
Chinese and Indian Prospects
Traditionally, China and India have been important export customers for Russian fighters, but it is unclear whether this trend will continue with the new products.

China has embarked on two fighter programs of its own that are at least fifth-generation in external appearance, the Chengdu J-20 and the Shenyang FC-31. The Chinese defense industry is still heavily dependent on Russian and Ukrainian aircraft engines and the FC-31 may provide a source of financial support for an increased-thrust version of the Isotov/NPO Klimov RD-33 engine that powers the MiG-29 fighters.

Two versions of that engine are installed on the FC-31 that debuted last November at Air Show China in Zhuhai, prompting comments from independent observers that the jet is underpowered. Chinese officials are now in discussions with the Russian engine makers to secure a 10 percent increase in thrust.

China’s commitment to the FC-31 and J-20 programs raises doubts as to whether it will be a T-50 customer, but the country has expressed an interest in buying the Su-35. However, proposals made by Beijing so far indicate that any purchase would involve relatively small numbers of aircraft that would be below those required to trigger the usual offset involvement of Chinese industry in the program.

India has made some initial commitments to the T-50 program and had wanted to develop a unique version of the aircraft for its own requirements. This would follow the cooperation pattern established almost 20 years ago when India agreed to support a Su-30MKI version of the Su-30MK fighter.

However, this scenario has all been called into question by India’s recent decision to purchase 36 of Dassault’s Rafale fighters. The Indian government has yet to indicate whether its budget would also allow for an investment in the T-50.

Meanwhile, Russia is now exploring ways to make its defense modernization budget go further by considering cost-cutting measures such as a reduction in the number of armed forces personnel to 800,000. Similar plans have been put forward by the finance ministry, which include an attempt at balancing the federal budget by also cutting back on the number of new recruits by 10 percent. The idea is that, with reduced armed forces, the goal of modernizing and re-equipping units with all-new hardware would become a more manageable task for Russia’s defense industry.