RUSSIA: AMBASSADOR'S APRIL 12 MEETING WITH UAC DG

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001710 SIPDIS SIPDIS STATE FOR EEB, EUR/RUS, AND EUR/PRA USDOC FOR 4321/ITA/MAC/EUR/RISA BROUGHER AND BEADLE USDOC FOR 3004/CS/ADVOCACY/BLOOM NSC FOR KLECHSKI AND MCKIBBEN E.O. 12958: DECL: 04/11/2017 TAGS: EAIR ECON EINV PGOV PARM PINR RS SUBJECT: RUSSIA: AMBASSADOR'S APRIL 12 MEETING WITH UAC DG ALEKSEY FEDEROV REF: MOSCOW 1337 Classified By: Ambassador William J. Burns for Reasons 1.4 B and D ¶1. (C) Summary. In a April 12 meeting with the Ambassador, Director General of the United Aircraft Corporation (UAC) Aleksey Federov said that he had joined the industry effort to lobby GOR officials, particularly Presidential Aide Igor Shuvalov, for a "balanced" aviation policy to build good relations with both the U.S. and Europe. Federov expressed optimism that despite the deal's politicization, Aeroflot would split its wide-bodied tender between Airbus and Boeing. While a long-time EADS supporter, Federov was quite positive about potential UAC-Boeing cooperation now and in the future, including the development of civil and cargo aircraft. He raised concerns about possible U.S. sanctions on MiG for a sale of combat aircraft to Syria and referred to the Ministry of Foreign Affairs' non-paper sent to the Embassy. Federov said he would be open to a meeting between MiG and USG experts on the sale to try to avoid a misunderstanding. End summary. BOEING-UAC COOPERATION AND THE AEROFLOT DEAL -------------- ¶2. (C) Federov said that while Aeroflot will buy A350s for delivery in 2016-2017 (with A330s to bridge the gap),Boeing still has "a good chance" of making a 787-Aeroflot sale. The decision would be made at the political level. Joining the wider industry effort to advocate for a "balanced policy" between Europe and the United States, Federov and Aeroflot CEO Valeriy Okulov have lobbied Presidential Aide Igor Shuvalov to allow the Boeing purchase given the 787's earlier delivery schedule. ¶3. (C) Federov said that while UAC and Boeing may compete in the military market, they are good partners in civil aircraft manufacturing. In particular, he cited UAC-Boeing cooperation on the SuperJet, post-sale support, titanium composite materials, and new design technology. Relations between Federov and Boeing CEO for Commercial Airplanes Scott Carson are good. Federov will see him at the Paris Air Show (June 18-24) and in Seattle for Boeing-UAC talks in July. On the MS-21 narrow-body concept jet, Federov was pleased that �0A;Boeing agreed to a joint market-assessment group to study the feasibility of the concept aircraft. He appreciated Carson's willingness to consider negotiations on Boeing's royalties on the SuperJet, either by converting some of the royalties into an equity stake or by accepting the same amount for a larger number of planes produced. U.S. SANCTIONS ON MiG? -------------- ¶4. (C) Federov said that MiG had received notice from the State Department via the MFA that its sales of fighter planes to Syria could instigate U.S. sanctions against the company. According to Federov, MiG only plans to exchange new combat aircraft (MiG-29s and MiG-31s) for exactly the same number of old combat aircraft (MiG-21s, MiG-23s, and MiG-25s) in Syria so as to not upset the balance of power in the region. Federov said that MiG's cooperation with Israel was important and the company would not do anything to jeopardize its activity there. MiG asked the MFA to send a non-paper to the Embassy to better explain the sale. (The non-paper states that no MiG planes are being sold to Syria at the present time. Assessment septel.) Federov suggested that USG and MiG experts should sit down together so that MiG could better understand U.S. sanctions law and the U.S. could get more details on the MiG deal with Syria. STATE OF PLAY OF RUSSIAN AIRCRAFT MANUFACTURING -------------- -- ¶5. (C) Federov divided the world's aviation markets into three groups - military, cargo, and civilian - and assessed the Russian aircraft-manufacturing industry's global market position in each one. First, Federov said that Russia is one of the world's leaders in military aviation and would like to keep its relative position over the next couple of years. While UAC will strive to get a few more percentage points of global market share in the near future, military aircraft will not be its principal focus for now. ¶6. (C) On the other hand, cargo aircraft will demand a lot of MOSCOW 00001710 002 OF 002 UAC attention as the goal is to triple or quadruple production of transport planes over the next few years. Federov said that while the USSR was a global leader in specialized cargo aircraft, manufacturers were located in present-day Ukraine and Uzbekistan. Federov envisioned UAC-Cargo subdivisions of light, medium, heavy, and super-heavy transport. (One of the four agreements UAC just signed with EADS was for a joint venture on the conversion of A320s to cargo planes in both Russia and Germany. See reftel.) ¶7. (C) Federov called civil aviation his "biggest headache." Civil aviation production during Soviet times was overly political and geared only to the domestic market. He lamented that the situation had only grown worse over the last fifteen years and that Russia had a diminished stake in the global market. He said that UAC had no desire to compete now with Boeing or Airbus on wide-bodied aircraft, but would instead concentrate on the regional 90-130 seat niche (something neither Boeing nor Airbus does). The SuperJet is a good start for UAC, but the standard SuperJet100 could only command about five percent of the world market. To boost this share, UAC wants to build a "family" of SuperJets with at least three sizes: small (75-80 passengers),medium (80-100 passengers),and large (100-130 passengers). UAC also hopes to start work on what it sees as the next generation narrow-body, mid-range jet: the MS-21 (90-150 seats). UAC feels that success with the SuperJet family and the MS-21 would help it achieve up to 10% of the global market and would allow it to surpass Bombardier. COMMENT -------------- ¶8. (C) While Federov may belong mostly to the EADS camp, he seems to have developed respect for Boeing's work on the SuperJet and for Boeing CEO for Commercial Airplanes Scott Carson. The two saw each other in London (December 9), Seattle (February 14-16),and in Moscow (March 11-12). The royalties Sukhoy pays Boeing for its work on the SuperJet have been a sticking point between the two firms, but Federov said he appreciated Carson's willingness to consider an alternative solution. BURNS