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TECHNOLOGY'S TWO-WAY STREET
by Kevin Lyons

Technology is now moving both ways between the New Independent
States (NIS) of the former Soviet Union and the West.  Not only
is important NIS research being sought out and applied by U.S.
companies, but U.S. technology is being applied to new NIS
products, often with major benefits for American exporters.  The
aerospace industry is one of the best examples of this
technological two-way street.

Access to U.S. technology comes at a crucial time for the Russian
aerospace industry.  NIS airlines are turning increasingly to
foreign-built aircraft that are expensive, but which meet
international aircraft certification standards.  Russian aircraft
manufacturers are looking to Western partners to help them
compete.  U.S. aerospace companies are among the leaders in
building relationships with their Russian counterparts. 
According to Mark Sullivan of Pratt & Whitney, "The Soviet Union
sunk its national treasure into the aviation industry.  Although
the industry is suffering some understandable difficulties at the
moment, it will rebound."

Market in Crisis
The market for aircraft produced in Russia and the NIS with
exclusively indigenous technology is collapsing.  Russia's great
strengths--an inexpensive but highly-skilled labor force and
decades of aircraft manufacturing experience--are more than
offset by the lack of advanced technologies in propulsion systems
and avionics.  At the same time, the market for international
passenger and cargo services in the NIS is increasing while
demand for domestic service is falling.  The shift towards
international service is forcing NIS airlines to make much
greater use of Western aircraft that conform to international
noise, pollution, and safety standards.  Indigenous NIS aircraft
rarely meet such standards.  

There are now 141 independent NIS airlines, 41 of which are
certified international carriers.  These airlines are expected to
acquire up to 250 new aircraft for international service over the
next 18 years, and international certification will strongly
influence the new airline's procurement practices.  An obvious,
if expensive, solution for local air carriers is to buy or lease
foreign aircraft for international service.

Applying U.S. Technology
To compete in the NIS market, Russian and other NIS aircraft
manufacturers are building partnerships with U.S. aerospace
companies, in acknowledgement that such cooperation is essential
to their survival.  Joint projects that are most likely to
succeed are those that combine the advantages of NIS aerospace--
especially airframe manufacturing, with U.S. strengths in
aircraft engines, avionics, and other on-board systems.  

The best example of this cooperation is the Il-96M airliner, a 
project involving the Russian design bureau Ilyushin and no less
than 18 U.S. aerospace companies.  The four-engine Il-96M seats
up to 386 passengers, and has a maximum range of 7,146 miles for
service on medium- to long-range routes.  Ilyushin has already
received orders or letters of intent for 40 aircraft from four
international customers.  

Full-scale production of both passenger and cargo versions, both
of which will receive Russian and U.S. certification, is to begin
in early 1996.  When the Il-96M is in full production, it will
incorporate 60-80 percent U.S. content, and each aircraft will
represent $40-50 million in U.S. exports.  Major U.S. suppliers
include Pratt & Whitney (engines), Rockwell Collins (avionics),
Hamilton Standard, (propulsion equipment), and Litton Industries
(inertial navigation system), among others.
  
Even older Soviet-era aircraft are being refitted with U.S. and
other foreign components to keep their owners competitive.  Yuri
Kashitsin, General Director of Vnukovo Airlines (VAL), recently
told the Interfax News Agency that of VAL's medium-range Tu-154M
aircraft are now equipped with KLN-90 satellite navigation
systems manufactured by Allied Signal, which is also being
installed on the airline's Il-86 long-range airliners.  VAL is
looking for assistance in installing foreign-built aircraft
engines on its Russian planes as well, he said.

Tariff Issue
The application of U.S. aerospace technology in Russia is
threatened by high Russian tariffs on imports of aircraft and
parts.  U.S. industry representatives are adamant that tariff
levels for aircraft above 5 to 10 percent will prevent most
aircraft and aircraft part sales from taking place.  The tariff
on aircraft will be reduced from 50 percent to 30 percent as part
of the Russian Government's agreement with the International
Monetary Fund on tariff rationalization.  While this is a
substantial reduction, a 30 percent tariff will continue to
stifle the market for U.S. aircraft and parts in Russia.  

Several U.S. companies are poised to make major commitments in
Russia once tariffs are lowered far enough, according to
government sources.  Industry representatives and U.S. Government
officials continue to press for lower tariffs.  Strong domestic
interests, mainly Russian airlines, have also been lobbying the
government to rescind the high tariffs.  At risk are U.S. exports
of aircraft and aircraft parts which are the largest U.S. export
to Russia ($343 million in 1994).

Kevin Lyons covers aerospace for BISNIS.
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