BOEING RUSSIA: AEROFLOT 787 DEAL DEPENDS ON

C O N F I D E N T I A L MOSCOW 013003

SIPDIS

SIPDIS

STATE FOR EB AND EUR/RUS
STATE PLEASE PASS USTR FOR AMB DONNELLY, DWOSKIN
USDOC FOR 4321/ITA/MAC/EUR/RISA BROUGHER AND BEADLE
USDOC FOR 3004/CS/ADVOCACY/BLOOM
NSC FOR GRAHAM AND MCKIBBEN

E.O. 12958: DECL: 12/20/2016
TAGS: ECON PREL EAIR USTR RS
SUBJECT: BOEING RUSSIA: AEROFLOT 787 DEAL DEPENDS ON
COOPERATION WITH UAC

Classified By: ECON M/C Quanrud by reason 1.4(b/d).


1. (SBU) According to Boeing sources, Minister of Finance
Kudrin, Minister of Economic Development and Trade Gref, and
Minister of Industry and Energy Khristenko agreed on December
19 to delay the GOR's decision on Aeroflot's acquisition of
22 wide-bodied jets until the GOR receives written proposals
from Airbus and Boeing on potential cooperation with the
United Aircraft Corporation (UAC). Due to the absence of a
GOR decision on aircraft purchase, the Dreamliner vote never
made the Aeroflot Board's December 19 agenda.


2. (SBU) Boeing plans to caucus in Seattle January 9-13 to
decide what proposal, if any, to submit in response to the
GOR request. Over the past three weeks, Boeing has amended
its thinking on the 787 sale, and while Aeroflot will loose
its 2011 delivery slots on January 1, the current contract
will not be torn up, as was previously contemplated. All of
this means that lengthy contract and price renegotiations
will therefore not be necessary in the new year.


3. (SBU) Both Boeing and EADS are already working actively
with UAC component companies. Boeing is Sukhoi's principal
partner on the SuperJet100, and is considering a joint
venture on the Sukhoi SuperSonic Business Jet (a corporate
jet that could break the sound barrier). Boeing has hosted
countless design engineers from Sukhoi and other UAC member
companies as detailees in its Moscow Boeing Design Center,
conveying significant technical and management expertise.


4. (SBU) EADS owns 10% of Irkut, and is working with the
company on A330 cargo conversions. In its rush to bring the
A359XWB to market without further delays, EADS is rumored to
be ready to subcontract out up to 45% worldwide. UAC is
looking at some of the design and manufacturing work, as EADS
tries to control labor costs and avoid additional delays.
Russia's state-owned Vneshtorgbank owns approximately 6% of
EADS and sits on the UAC Board. The press is circulating
rumors that the GOR wants to transfer the EADS stock to UAC
as an "insurance policy" that cooperation between the two
companies will go well.

COMMENT
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5. (C) Aircraft-manufacturing has become informally known as
the "fifth national priority project" and the success of the
United Aircraft Corporation is being increasingly cast as
vital to Russia's national security. The GOR is actively
seeking foreign partners for UAC, and is apparently prepared
to leverage Aeroflot's pending purchase of 22 wide-bodied
jets in the effort. With this new twist, the clear
commercial merits of the 787 over the yet-to-be-designed
A350XWB are losing further ground. Independent of the firm's
reply to the latest GOR call for cooperation, Boeing
management has said that it will continue to grow its Moscow
Design Center and titanium joint-venture because of their
inherent value to the company. As this battle ripens, EADS
will have to decide how far it is willing to go in what looks
to be a parasitic relationship with the emerging UAC, but,
for UAC's part, the state controlled EADS may be a more
attractive mate.
RUSSELL