12 Nov 2021

Almaz-Antey Deputy General Director Vyacheslav Dzirkaln: There is heightened demand for Russian air defense systems

Almaz-Antey Deputy General Director for Foreign Economic Activity Vyacheslav Dzirkaln has given an interview to Interfax in which he speaks about the company's economic performance in 2021, its order book and new products to be exhibited at the Dubai Airshow 2021.

Question: What is your assessment of the market for air defense systems in the Persian Gulf and the Middle East in general? What share of this market could Almaz-Antey have? What will the company present at the Dubai Airshow 2021, which openы in the United Arab Emirates in the next few days? What products will you focus on in particular?

Answer: It is common knowledge that the region's states are among the largest segments of the global arms market. Air defense systems are a priority for the countries of the Persian Gulf, Middle East and Northern Africa. I would not estimate the volumes in absolute figures because they are approximate and rather sketchy.

We are actively working in this market. We have what is called our segment there and we will continue working. Naturally, we cannot miss such an opportunity as the Dubai Airshow to promote our own interests at such a respected venue.

We will present the entire range of our air defense missile systems, from long-range to shorter-range ones. We are planning to display Viking and Tor-E2 intermediate- and shorter-range systems at the show. Long-range systems will be represented by S-400 Triumf, Vityaz and the Abakan non-strategic missile defense system.

The last two products will be exhibited abroad for the first time. I would like to say a few words about each of them separately. First of all, they have largely incorporated the wishes and requirements of our potential partners. Secondly, these are wheeled systems, which increases their maneuverability.

Hopefully, Vityaz and Abakan will draw a lot of interest from our partners. However, this doesn't make them superior to other products which we will demonstrate in the UAE. Viking, which combines enhanced survivability and maneuverability, is indispensable for covering troops in combat. Tor has no rivals in close-range protection, which long-range systems are unable to provide.

Q.: What are the company's main results in the military and technical cooperation sphere in 2020? What was the value of export deliveries? Are you on course to meet this year’s targets or is it too early to speak about that?

A.: In general, we can speak about this year as well, despite it having been quite challenging for a number of reasons, including the coronavirus pandemic and the sanctions imposed on us by our ‘partners’. Nevertheless, we believe that we have been quite successful. We are expecting the exports of our systems - and this is our target for this year - approximately $2.2 billion

Q.: This is a large portion of Russia's total arms exports which amount to about $15 billion -$16 billion...

A.: Traditionally, aviation and air defense are the main segments of Russian arms exports.

Q.: What's the company's order book today?

A.: We have a book of firm orders amounting to $8.5 billion.

Q.: So Almaz-Antey has export orders for the next five-seven years?

A.: Yes. And this kind of work is ongoing. Hopefully, the book of export orders will be growing.

Q.: Today, Almaz-Antey's trump card is the state-of-the-art S-500 Prometei air defense system. Its state trials have recently been completed, and the Armed Forces are awaiting deliveries. The system is likely to be exported as well. In any case, this is already being discussed. When might export deliveries begin? What country will be the first S-500 customer?

A.: S-500 systems will probably be exported in the future, but it is still too early to talk about that. The company’s main mission is to ensure the security of our state's air borders. And, naturally, what counts most here is to fulfill the state defense order in keeping with the tasks that have been set for us. But, at the same time, it is necessary to remember that additional tasks may arise as the state customer's order is fulfilled. The top priority at this stage is to provide for our own Armed Forces. When we do this, and when interest among foreign partners in the S-500 grows - and this interest will certainly not disappear - then we will consider exports.

Q.: Indeed, if we look at the history of export deliveries of the S-400 system, they began after the demand of the Russian Armed Forces was met to a large extent. The Russian army will get the state-of-the-art S-350 Vityaz air defense system. Are there any negotiations on its exports? When and with whom might the first contract be signed?

A.: We will not deny that a number of our partners have shown interest in this system. We won't tell you which ones just yet. But as I said, when developing this system were took into consideration both global trends and the demands of our potential customers. That is why, hopefully, Vityaz will have substantial export potential.

Q.: Are there any real negotiations being conducted?

A.: I would put it this way –serious interest is emerging. I previously said that we will present S-350 at the Dubai show. Hopefully, concrete talks will be held there.

Q.: The delivery of S-400 systems to Turkey, which is a NATO member, was a landmark event in Russian arms exports. Despite intense pressure from Western countries, primarily the United States, Turkey not only has bought S-400 systems but also plans to buy more of them. The Turkish president said recently that Ankara was ready to buy another batch of S-400 systems. When might a new contract be signed? How many systems are in question? Previously, the Turkish president said that this would be one more regiment.

A.: I would like to say that, in my opinion, the Turkish side chose maximum security of its airspace by selecting this air defense system. Political considerations were pushed to the background. Speaking of the contract implementation, the first set has been delivered, and Turkish specialists have begun to operate it. The feedback is very positive. Turkey wants to continue to do business, and we are pleased with that. Moreover, as you have mentioned, this is about a NATO country with developed industries, which has duly appreciated our system. We are ready for cooperation and, if a task is set, we will accomplish it.

Q.: At what stage are the negations on S-400 deliveries to Belarus? How many systems might Minsk buy?

A.: From the organizational and technical angles, the air defense network of the fraternal country is in very good shape and may be the envy of many developed countries. Cooperation is continuing in this field, we are supplying short-range systems, and providing repairs and assistance in the modernization of their hardware. As to S-400, we are ready to accomplish this task, but have not been asked to do so.

Q.: Have the deliveries of S-400 systems to India begun? What is your assessment of the preparedness of Indian specialists who were trained at Almaz-Antey grounds to operate these systems?

A.: We are at the final stage of fulfilling our contractual obligations. I can assure you that they will be fulfilled.

As regards training, we for the first time trained a large group of specialists at a center specially created at our company. I also want to note the level of Indian specialists' skills and their immense interest in studying this sophisticated hardware, which is new to them. The first group's training was completed back in July, and a second large group is now completing their training. These specialists will be fully prepared to operate the hardware that will be delivered to them. I can say that the Indian side is ready to accept, deploy and begin operating the S-400 systems that will be delivered to them.

Q.: Does this mean that the system could go on combat duty immediately after it is delivered?

A.: Indian specialists are ready for this. Let me say it once again – their level of knowledge and their attitude to training command respect.

Q.: India is a special country in terms of military and technical cooperation with Russia. India is known to have produced Russian aircraft, tanks and other Russian arms. They made hundreds of them. Are there any discussions regarding the licensed assembly of Russian air defense systems in India, as was the case with aircraft (the Sukhoi Su-30MKI fighter jet), armored vehicles (the T-90 tank) and some other arms?

A.: I will be brief. Right now we’re only talking about supplies.

Q.: It was reported earlier that Saudi Arabia could become another buyer of Russia's S-400 systems. How realistic is the prospect of signing a contract with Saudi Arabia?

A.: It wasn't a bluff, contacts really took place, and the issue was discussed. There is always a chance. Time will show how realistic it is. There is a good saying in the East: ‘He who lives sees’. We'll see.

Q.: What is your assessment of prospects for international cooperation in the development and production of air defense systems, as well as the creation of maintenance centers and spare parts warehouses for exported arms? Many countries that buy our weapons raise the issue of not just a ready sample but to somehow take part in the process, either with licensed production or development. Or would we rather remain a monopoly as far as air defense systems are concerned?

A.: We are currently coping ourselves with the production of the required amount of products. In fact, the number of potential customers is rather limited, keeping in mind both the price and the tasks of these air defense systems. So, joint developments are out of the question for now. We put the main emphasis on organizing post-sales maintenance, which is the creation of maintenance centers for repairs and day-to-day operations of hardware. We will probably create specialized warehouses in some regions.

If insufficient post-delivery maintenance has been our weakness in the past, we are now actively paying close attention to this. We are actively working on organizing post-sales maintenance centers in the countries where we have enough of our hardware. This is economically feasible. This is the best way for us to interact with partners at this stage.

Q.: Almaz-Antey offers not only deliveries of separate air defense systems but also the creation of a multi-layer air defense system. What is the advantage of this approach?

A.: We have been and will be promoting all types of air defense systems that we produce. However, indeed, the thing today is that we together with Rosoboronexport have started to offer the creation of multi-layer defense that includes the whole range of air defense systems that we produce, varying from long-range to short-range ones. Depending on specific tasks that our partners face, we offer various options of developing and creating multi-layer defense.

We offer options in which every system has its own tasks. The first solve them at a long range, the second at a medium range and the third at a close range. A whole range of our potential customers receive this approach well. I think we will continue working this way, of course keeping in mind that some countries are interested in purchasing separate elements.

Q.: But in this case our partners have to take certain efforts to integrate the purchased elements into their current aircraft system. If a multi-layer air defense system is created from scratch there wouldn't be such a problem by default because all our systems are initially integrated with each other...

A.: If we speak about combat hardware we produce, its integration will produce the utmost effect. The quality is guaranteed. As far as multi-layer defense is concerned, all roles are distributed and trained in detail in line with the purpose and tactical and technical characteristics of the products, where for example the first destroy anti-radar missiles, the second destroy the fighter jets that launched them and the third the airborne command post that controlled the air strike and so on.

Q.: So, does this mean that those who bought S-400 are also potential customers of small- and medium-range systems, such as Buk and Tor?

A.: Yes, everything depends on the tasks that partners set for themselves.

Q.: Russian arms exporters have been working amid tough Western sanctions over the past several years. How has Almaz-Antey managed to expand the volume of export deliveries despite unparalleled pressured from the U.S., including on our traditional partners, and problems surrounding settlements under signed and fulfilled contracts? Moreover, sanctions have been imposed not only against Russia...

A.: Yes, restrictions have been imposed even on our potential partners, let me put it this way. In general, we solved the first sanctions-related problem, cutting us off from components that we bought in foreign countries, through the import-substitution program. This isn't a problem for us now. And for example, settlements... Regrettably, U.S. dominance in financial markets creates certain difficulties. But we are not standing still here. If we speak about settlements, we are not only offering new options for making them. Partners are rather flexible as well and often we choose the paths that they propose for solving the problems. As a result we can find a way out. Settlements are made and, as we can see, exports are growing. So, there are options. We are searching for them together with our customers.

Q.: Does this include switching to settlements in national currencies in the military-technical sphere?

A.: I wouldn't go into detail about certain mechanisms. I would only say that we are using various options to solve the problem of settlements.

Q.: Another negative factor is the coronavirus pandemic that has lasted for almost two years now. It's become problematic to go to foreign countries and to invite partners, communication has become more complicated. Were you forced to adjust military-technical cooperation plans? How has this influenced export deliveries?

A.: Shock is the most appropriate word to describe the state when we, like all others, faced Covid-19 for the first time. We needed to mobilize all production, organizational and managerial resources. Despite yet another wave of the pandemic, at this stage we cope with its challenges. I am very thankful to personnel, directors of the enterprises, and managers who amid the most complicated situation managed not only to preserve production levels but also to meet performance benchmarks and fulfill the set tasks. Yes, it's not easy today, but everything can be and is being resolved.

As for interaction with foreign partners... Indeed, it is very hard to interact with, for example, Southeastern Asia countries. There is almost no exchange in delegations. If specialists go there, they do certain work with the hardware under existing obligations. The number of meetings has reduced significantly, that is why were prepare very thoroughly and gather the whole package of questions that we could discuss with them.

At the same time, we found such a format of negotiations on current cooperation as video link-ups.

Q.: Almaz-Antey has the right to independent foreign economic activity as far as maintenance and supply of spare parts for military hardware operated in foreign countries are concerned. How successfully has the company been in implementing this right? What figures have you reached?

A.: We confidently fulfill the tasks that the leadership of our country sets before us. Yes, there are and there arise circumstances that hinder our work. These are sanctions and unfair competition on behalf of some states that use pressure not only on us as producers but also our potential customers. These are threats and the deprivation of financial preferences and so on and so forth. Nevertheless, the analysis we undertook in the wake of last year proves that we are meeting the targets and even go somewhat further.

Here is a specific example. We managed to sign six contracts – exactly within the framework of the right to foreign economic activity – at the Army 2021 international military and technical forum. This is a big breakthrough. We make use of every opportunity to communicate with our partners, and the international military and technical forum was one of them.

Once again I would like to mention the work of our personnel, enterprises and their directors. They accomplish all the tasks we, as the managerial, head organization, set. Yes, it's not easy. Yes, there are problems, but people understand that this is our image, our reputation, and we will take care of our reputation.

Q.: Could you go into detail about upgrades and retrofit? A lot of air defense systems have been supplied to foreign countries since Soviet times. They have to be repaired and upgraded. What is your estimate of the market for retrofitting previously exported air defense systems?

A.: Since the start of military-technical cooperation, our country - the Soviet Union and later Russia - has supplied a lot of air defense systems to various states. A considerable number of them are now just exotic to us. And unfortunately, we sometimes can't provide spare parts to operators for the simple reason that the some products were discontinued 30-40 years ago. But such products are still in operation in many countries - Kvadrat, Kub, and Pechora - and therefore this issue is also relevant to us. We are working on various proposals to upgrade and retrofit equipment already supplied, taking the development of the components and new technologies into account. And all this is being offered to our partners.

The range of tweaks and adjustments is quite extensive. There is the most basic or full transfer of these systems to a modern base. The price depends on that. We always offer several options. Partners consider them and decide, and we start working. Eventually, everything depends on the capabilities of the partner country when selecting options. Bearing that in mind, we make a fairly broad range of offers.

Today we estimate the upgrade and retrofit potential of air defense systems earlier shipped to foreign countries at some $15 billion. It should be remembered that the 'previously supplied' notion will tomorrow refer to hardware are exporting today. Thus, the figure is growing.

I would like to note that that many countries, having limited budgets, are ready for upgrades and retrofit, and some prefer to buy modern systems as they have the capabilities for that. Everything depends on the buyer, their goals, purposes and financial capabilities.

Q.: We have heard on many occasions senior officials saying that the book of orders for Russian air defense systems is so big that many foreign customers have to queue to get air defense means produced by Almaz-Antey. Has that queue got shorter after two new plants were put into operation recently?

A.: I wouldn't speak about a queue for our products. Such a definition would mean that we don't cope with our work. We prefer to talk about strong demand. We don't work for the future, we work to order. That is why we have to put someone in the queue. First come, first served.

Naturally, two new enterprises have considerably alleviated the burden on the plants that previously made products. There was redistribution. But I would like to say once again that if there is a queue, this proves above all that there is good demand for quality products rather than that production facilities are overloaded.