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

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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
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

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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