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The Sino-Russia Il-76 Row

disclaimer: image is for illustration purposes only
by Andrei Chang
Hong Kong (UPI) Jun 12, 2008
For some time, military cooperation between China and Russia has been stalled over a failed deal involving China's import of Russian Ilyushin Il-76 transport aircraft. China claims that Russia violated the terms of an agreement involving the sale of 38 aircraft. But Russia says this claim is unfair.

Negotiations on the aircraft deal began seven years ago. By the time the contract was signed in 2005, China had agreed to purchase 30 Ilyushin Il-76 transport aircraft and eight Ilyushin Il-78 air-to-air refueling tankers at an extremely low price. According to a source in the Russian military industry, China initially offered only $18 million for each plane. The Russian side proposed $22 million, and eventually the two sides settled on a price tag of $20 million per aircraft.

Such a low price was unprecedented in the international transport aircraft market. By comparison, around the same time Jordan had contracted for a variant of the Ilyushin Il-76 at a price of about $50 million per aircraft.

For this reason, the deal was controversial from the outset. The discussions began in 2001, the contract was signed in 2005, but by 2008, not a single Ilyushin Il-76 transport had been delivered.

The aircraft were to be assembled from Russian parts at the Tashkent Aircraft Production Corp. in Tashkent, the capital of Uzbekistan, a former Soviet republic in Central Asia. Out of the 38 Ilyushin Il-76 transports contracted, 15 were already half finished. The other Ilyushin Il-76s were to be newly manufactured.

The Tashkent-based company was facing serious financial difficulties, however, and was unable to produce the aircraft according to schedule. This was made worse by the dramatic fluctuation in the value of the U.S. dollar and escalating inflation in Russia -- making the cost of producing the transport aircraft much higher than when the deal was originally signed.

According to the Russian side, the Chinese have been unreasonable in refusing to renegotiate the deal in light of changing circumstances.

The Russian source compared the situation with a similar one faced with India over a 2004 deal involving the refurbishing of the aging Admiral Gorshkov aircraft carrier for use by the Indian navy. The Russian side was able to hold frank discussions with the Indian side, the source said, and acknowledged that it had made errors in the initial assessment.

The task was to refit the old aircraft carrier, but after dismantling the vessel, Russian engineers realized that the project was practically equivalent to building a brand-new aircraft carrier.

"The Indian experts saw the same situation we did, and as a result the two sides could look at the issue with mutual understanding and find a satisfactory solution to the problem," the source explained.

But the Chinese have been less understanding and less accommodating in their negotiations with the Kremlin over the Ilyushin Il-76 deal, the Russians claim. The Chinese also insist they will not sign any major military procurement agreement with Russia until this problem is solved to their satisfaction.

Why China still needs Russian aircraft
Russian officials complain that the Chinese have not been understanding and accommodating in their negotiations with the Kremlin over the long-stalled Ilyushin Il-76 transport aircraft deal.

The Chinese insist they will not sign any major military procurement agreement with the Kremlin until this problem is solved to their satisfaction.

The Russians say they are still willing to carry out the agreement and complete the manufacture and delivery of the Ilyushin Il-76 transport aircraft to China. But considering the current reality in Russia and Uzbekistan, the manufacturer feels it is only fair to readjust the price.

A source from Ilyushin Finance told UPI recently that the Ilyushin Il-76 transport aircraft dispute with China has made some recent progress. That is, China is now aware of the reality in Russia and is willing to discuss the possibility of signing a new contract. The China side insists, however, that the specific models of the transport aircraft, production sites and prices all will have to be renegotiated.

The Chinese side also has asked to inspect the aircraft production plant before signing a new official agreement. A more feasible plan is that the Chinese side first will inspect the Ulyanovsk Aircraft Factory, which is now preparing for the production of a brand-new version of the Ilyushin Il-76, called the Il-476.

The Ilyushin Il-476 is equipped with a full numerical flight-control system, a glass cockpit and a new-generation PS-90 engine. China is somewhat familiar with the Ulyanovsk Aircraft Factory, which in the past has produced Tupolev Tu-204 passenger aircraft for China that proved quite satisfactory in quality.

The factory will need to upgrade its equipment to manufacture the Ilyushin Il-476, as currently only 20 percent of the necessary equipment is ready. Fortunately, money is not a problem at the moment. The Ilyushin Group has sufficient financial capability to organize the production.

Russia recently set up the state-owned United Aircraft Corp., made up of the Ilyushin Group, Sukhoi and MiG. The Tashkent Aircraft Production Corp. also has decided to join this group, with the final signing ceremony to take place within two months. Once the Tashkent company formally joins the state corporation, it may receive new funding and be able to resume its full production capability.

According to the Russian source, China already has initiated preliminary contact with the United Aircraft Corp. to discuss renegotiating the Ilyushin Il-76 transport aircraft deal, but the whole process will take some time. It is not clear when a new agreement would be signed.

The latest developments with regard to the Ilyushin Il-76 deal are exactly in keeping with this author's prediction -- that China would have no alternative to Russia to produce its military transport aircraft.

The question now is what impact China's recent creation of the J-11B -- an illegal copy of Russia's Sukhoi Su-27 air superiority fighter -- will have on its renegotiation of the Ilyushin Il-76 deal with the Russians.

(Andrei Chang is editor in chief of Kanwa Defense Review Monthly, registered in Toronto.)

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