Russia’s TASS News Agency interviewed Sergey Chemezov, CEO of Rostec. We reproduce the entire interview here in question and answer style.
TASS: Sergei Viktorovich, please try explaining the so-called phenomenon that no matter what Russia begins to produce it always ends up with a Kalashnikov assault rifle?
– No, not always! We have come up with other products as well. For instance, if we are talking about Rostec, it has a large share of the civilian-oriented production segment. In 2016, this segment accounted for a quarter of the overall output and as of today all of our group’s companies were assigned to boost this figure up to 50 percent before 2025.
Otherwise, our enterprises would go bankrupt. The state rearmament program is in force until 2020 and we hope that its completion would be gradual.
However, what comes next? Obviously, production of up-to-date weapons will continue in the future, but not like today’s volumes. A gradual shift into towards civilian-oriented production is inevitable and we will need to come up with top-quality, cutting-edge intellectual and competitive products. I should say that our production for perinatal centers is in line with Western standards. Our manufactured Neonatal Intensive Care Units (NICU) is in great demand across Europe. This is not our only product, which enjoys customers’ popularity in Europe and beyond its borders.
But you are right saying that we keep up with producing decent Kalashnikov assault rifles. By the way, I would like to say that four years ago Izhmash scientific and research center was on the brink of bankruptcy seeing delays in wages up to half a year, exhausted manufacturing equipment and only a 20-percent workload on newly purchased equipment. In 2013 we have reformed the scientific and research center into the Kalashnikov Consortium inviting private investors, who acquired a 49-percent stake in the company. Rostec remained the core shareholder of the company and in January 2014, Alexei Krivoruchko, one of the major investors, assumed the post of the director general. He takes great interest in his work, likes weapons and is a great expert in this sphere. However, we are not coming up with combat assault rifles only. Today, it is a multi-oriented enterprise producing various products, including hunting rifles, sports rifles – both for sports shooters and biathletes – as well as developing guns and equipment for Airsoft and Paintball competitions.
Last year the consortium bought the Rybinsk shipyard and assumed management over Vimpel shipbuilding company. The shipyard is developing and constructing high-speed powerboats as well as low and medium water displacement vessels. The vessels are produced both for military and civilian purposes.
Moreover, the Kalashnikov consortium is currently reviving motorcycle manufacturing. Perhaps, you do remember how popular the Izh-Planeta motorcycle was in the past. We now have been assigned to resurrect what was in the past and bring it to today’s level.
I am personally not worried about the imposed sanctions. If there is something that I regret about, are my trips to Europe, which I really admire…
The current sanctions did not particularly influence my work. However, I had to alter the course of my previous business trips. I pay now more visits to the Asian, African and Arab countries, where, I should say, most of our major business partners are living. I don’t think that I would be barred from going to these destinations.
TASS: Do the sanctions impede foreigners to work in Russia?
Wherever it is profitable for them, nothing is a hindrance. Let’s take titanium. This is a strategic material, for which hypothetically we must be cut off access to external markets. However, VSMPO-AVISMA’s joint venture with Boeing, which will mark ten years this year, is operating successfully and expanding while its output volumes are growing from year to year.
It all began with my acquaintance at an international airshow with then-Executive Vice-President of Boeing Company Alan Mulally. We talked and he complained to me that the factory in Russia that was producing titanium products on order from the US side was constantly disrupting deliveries and producing spoiled products, due to which the company experienced serious problems. He told me a lot of things. I returned to Moscow and started to find out what this factory was.
It turned out that the enterprise was located in Verkhnyaya Salda in the Sverdlovsk Region. I went there and got acquainted with Vladislav Tetyukhin, a co-owner of the metal-working factory who had been setting up titanium production at the facility. He admitted that the quality of products was sometimes inferior but the enterprise had no money for its development. I walked through the workshops that were in a very deplorable state: everything was utterly run down, with dirt everywhere and machinery bogged down in oil…
Tetyukhin invested his funds in the construction of a medical center in Nizhny Tagil while the factory in Verkhnyaya Salda became the largest supplier on the world market of titanium semi-finished products, including for Boeing. The Americans have shown a prospect for the sale of products and we have invested funds in this prospect. We registered Ural Boeing Manufacturing joint venture, built new production shops and delivered modern manufacturing centers. We didn’t take a penny from the enterprise for five years and invested all that we earned in improving production and purchasing equipment. Now the factory complies with the latest technological standards.
Besides, we have a joint scientific center with Boeing where modern alloys for aircraft are developed. The right to intellectual property belongs to us in equal proportions: 50 to 50.
TASS: Do you have a feeling that we are being edged out on the arms market?
No, we do not observe this so far. On the contrary, we are demonstrating growth.
TASS: But, for example, we lost large tenders in India: we lost to French contractors for the fighter jet and to Americans for attack helicopters.
This has always been the case. Sometimes, we get ahead of others but then our rivals get the upper hand. This is a normal market struggle. Rostec annually sells armaments worth $1.5-2 billion to India. Besides, we have to take an important factor into account: the contracts you are speaking about have just been signed but have not yet been implemented. A contract is considered to have entered into force when the necessary decisions have been made by both sides on government levels. As they say, a promise does not mean I’ll plunge into marriage. There were so many cases when preliminary documents were signed but then potential buyers backtracked on their pledges.
TASS: Did this also happen to us?
In India, this didn’t happen to us. We always avoided such situations there. But as for other countries, such instances took place. For example, we signed contracts worth $20 billion with Saudi Arabia five years ago but it was useless as the deal did not progress further than the intentions. Riyadh did not buy anything at that time.
To call things by their proper names, the Saudis simply played with us, saying: do not supply S-300 air defense systems to Iran and we’ll be purchasing your weapons – tanks and other hardware.
Now we have started a new round of negotiations and concluded a preliminary agreement worth $3.5 billion. However, the Saudis have set a condition: the contract will enter into force, if we transfer a part of technologies to them and open production on the kingdom’s territory. We are thinking about what we can share. The simplest thing is to build a factory for the production of small arms, say, the well-known Kalashnikov assault rifle.
TASS: And what can you say about the deliveries of S-400 systems to Turkey?
=As I said before, both sides have agreed all the technical terms. However, no final decisions have been made yet.
In this sense, things are quite different with India, for example. The inter-governmental agreement on the S-400 complexes has been signed, although there is still no contract, and we are discussing details of the deal. Let me repeat: it sometimes takes a year or more from the start of the process of negotiations to their completion.
Much depends on the buyers’ mood. If they urgently need it, they may promptly enter into a deal but in any case this takes no less than 3-4 months. I can’t remember any deal with any country that went through more quickly.
TASS: You have long been speaking about the contract on the Pantsyr-S1 air defense system with Brazil. At what stage is it?
There is certain interest and the Brazilians came to us to view all the trials and evaluate. Apparently, they send specialists not only to our country. They are choosing who can offer them better hardware and at a lower price. This is their right. We are waiting.
The portfolio of Rosoboronexport’s contracts that have been signed and have entered into force exceeds $45 billion. It is expected to be implemented in the next three-four years. I don’t see any reason to worry for a more distant future. Largely speaking, the sanctions have not affected our plans in any special way either. I won’t hide that initially we had fears that our volumes would shrink but this did not happen. There was no fall; on the contrary, we continue growing.
In a sense, serious demonstration of our military hardware took place in Syria. Our weapons vividly showed how they operated.
TASS: Has the demand for some weapons increased?
There is higher interest in air defense systems, from Pantsyr, Tor and Buk complexes to S-400 systems.
TASS: Do we have any restrictions on deliveries? Turkey is a NATO member country, for example.
These are defensive systems, which are designed to protect a country’s own territory rather than to attack anyone. Moreover, we do not transfer the codes, the friend-or-foe identifiers as the buyers adjust everything for their needs.
TASS: Did the US strike on Syria’s al-Shayrat airbase with cruise missiles tarnish the reputation of our air defense systems when Tomahawks burnt out aircraft in hangars and refueling stations?
We didn’t activate our air defense complexes and we didn’t try to shoot down missiles. This is why the Americans acted so calmly because they knew that we would not respond. But this was a case in the past…
TASS: And what is the situation with Uralvagonzavod’s main brainchild, the Armata tank? When will it go into series?
It is undergoing trials in the troops and they are scheduled to be completed by late 2018 and production will start in 2019. It is early to say how many machines the Defense Ministry is ready to order but I’m confident that the Armata will be in demand. This is the most advanced tank in the world!
But the T-90 is also a good tank. Several years ago, the Saudis organized a tender for the purchase of tanks, which involved the French Leclerc, the German Leopard and the US Abrams. Our T-90 was the sole tank that reached the tender’s final without any malfunctions after driving in a race across the scorched desert and shooting targets at an air temperature of 50 degrees Celsius.
Western tanks have air conditioners installed inside while our guys were sweating it out in a ‘tin can.’ I told the test drivers: “I’ll pour a glass of vodka for each of you guys when we return to Moscow. The dry law is in effect in Saudi Arabia and alcohol is prohibited. But in Russia no one could prevent us from celebrating a worthy performance. As they say, it was a fabulous race!