The Future of the Russian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2022

Table of Contents

1 Introduction 8

1.1 What is this Report About? 8

1.2 Definitions 8

1.3 Summary Methodology 10

1.4 About Strategic Defense Intelligence 11

2 Executive Summary 12

3 Market Attractiveness and Emerging Opportunities 14

3.1 Current Market Scenario 15

3.1.1 Primary Threat Perception 15

3.1.2 Military Doctrine & Strategy 16

3.1.3 Military Fleet Size 30

3.1.4 Procurement Programs 36

3.1.5 Social, Political and Economic Environment & Support for Defense Projects 39

3.1.6 Political and Strategic Alliances 40

3.2 Defense Market Size Historical and Forecast 42

3.2.1 Russia’s defense budget to grow at a CAGR of

8.62% to value US$65.2 billion by 2022 42

3.2.2 Military modernization and defense exports to drive defense expenditure over the forecast period 45

3.2.3 Defense expenditure as a percentage of GDP is expected to average

3.14% over the forecast period 47

3.3 Analysis of Defense Budget Allocation 49

3.3.1 The majority of Russia’s defense budget is allocated to revenue expenditure 49

3.3.2 Capital expenditure is expected to record a CAGR of

20.47% during the forecast period 51

3.3.3 Per capita defense expenditure expected to increase over the forecast period 54

3.4 Homeland Security Market Size and Forecast 55

3.4.1 Russian homeland security expenditure forecast to reach US$41.1 billion by 2022 55

3.4.2 Border security and the fight against cyber-attacks are mains factors for growth in the homeland security market 57

3.4.3 The Terrorism Heat Map considers Russia a “highly affected” region 59

3.4.4 Russia faces “high risk” from acts of terrorism 60

3.4.5 Russia faces a significant threat from terrorists 62

3.5 Benchmarking with Key Global Markets 63

3.5.1 Russia’s defense budget is expected to grow significantly during the forecast period 63

3.5.2 Russia is world’s third largest defense spender 65

3.5.3 Russia allocated

3.1% of its GDP to defense in 2017 66

3.6 Market Opportunities: Key Trends and Growth Stimulators 67

3.6.1 Space-based ISR 67

3.6.2 Transport Aircraft 69

3.6.3 Multi-role Aircraft 70

4 Defense Procurement Market Dynamics 72

4.1 Import Market Dynamics 72

4.1.1 The country’s defense imports are low owing to a developed indigenous sector 72

4.1.2 Ukraine was the key defense supplier to Russia 74

4.1.3 Aircraft and engines were the key defense imports during 2012-2016 75

4.2 Export Market Dynamics 76

4.2.1 Russia’s exports witnessed a decline during 2012-2016 76

4.2.2 India, China, and Vietnam are Russia’s main defense equipment purchasers 77

4.2.3 Aircraft and ships account for the majority of Russia’s defense exports 78

5 Industry Dynamics 79

5.1 Five Forces Analysis 79

5.1.1 Bargaining power of supplier: medium to high 80

5.1.2 Bargaining power of buyer: high 80

5.1.3 Barrier to entry: high 80

5.1.4 Intensity of rivalry: high 80

5.1.5 Threat of substitution: high 80

6 Market Entry Strategy 81

6.1 Market Regulation 81

6.1.1 Entry into defense sector is highly regulated 81

6.2 Market Entry Route 82

6.2.1 Budgeting Process 83

6.2.2 Procurement Policy and Process 85

6.3 Key Challenges 86

6.3.1 Russian Government’s aversion to Western defense technology 86

7 Competitive Landscape and Strategic Insights 87

7.1 Competitive Landscape Overview 87

7.1.1 Domestic industry in the process of consolidation for better focus and fund allocation 88

7.1.2 Defense sector is dominated by domestic firms, with no foreign presence 88

7.2 Key Domestic Companies 89

7.2.1 United Aircraft Corporation – overview 89

7.2.2 United Aircraft Corporation – Major Products 89

7.2.3 United Aircraft Corporation – recent announcements and strategic initiatives 89

7.2.4 United Aircraft Corporation – Alliances 90

7.2.5 Sukhoi: overview 92

7.2.6 Sukhoi: Products 92

7.2.7 Sukhoi: recent announcements and strategic initiatives 93

7.2.8 Sukhoi: Alliances 95

7.2.9 Sukhoi: Recent Contract Awards 95

7.2.10 Splav – overview 97

7.2.11 Splav – Major Products 97

7.2.12 Tactical Missiles Corporation: overview 98

7.2.13 Tactical Missiles Corporation – Major Products 98

7.2.14 Tactical Missiles Corporation – recent announcements and strategic initiatives 99

7.2.15 Tactical Missiles Corporation – Alliances 99

7.2.16 Tactical Missiles Corporation – Recent Contract Wins 100

7.2.17 Almaz-Antey – overview 101

7.2.18 Almaz-Antey – Major Products 101

7.2.19 Almaz-Antey – recent announcements and strategic initiatives 101

7.2.20 Almaz-Antey – Alliances 102

7.2.21 Almaz-Antey – Recent Contract Wins 102

7.2.22 KBP Instrument Design Bureau – overview 103

7.2.23 KBP Instrument Design Bureau – Major Products 104

7.2.24 KBP Instrument Design Bureau – recent announcements and strategic initiatives 104

7.2.25 KBP Instrument Design Bureau – Recent Contract Wins 105

7.2.26 V.A.Degtyarev Plant – overview 106

7.2.27 V.A.Degtyarev Plant – Major Products 107

7.2.28 Kurganmashzavod – overview 108

7.2.29 Kurganmashzavod – Major Products and Services 108

7.2.30 Kurganmashzavod – recent announcements and strategic initiatives 109

7.2.31 Kurganmashzavod – alliances 109

7.2.32 Kurganmashzavod – recent contract wins 109

7.2.33 Uralvagonzavod – Overview 110

7.2.34 Uralvagonzavod – Major Products 110

7.2.35 Uralvagonzavod – Recent Announcements and Strategic Initiatives 110

7.2.36 Uralvagonzavod – Alliances 111

7.2.37 Uralvagonzavod – Recent Contract Wins 111

7.2.38 Izhevsk Mechanical Works – overview 112

7.2.39 Izhevsk Mechanical Works – Major Products 112

7.2.40 Izhevsk Mechanical Works – recent announcements and strategic initiatives 113

7.2.41 Irkut Corporation – overview 114

7.2.42 Irkut Corporation – Major Products 114

7.2.43 Irkut Corporation – recent announcements and strategic initiatives 115

7.2.44 Irkut Corporation – Alliances 115

7.2.45 Irkut Corporation – Recent Contract Wins 116

7.2.46 Irkut Corporation – financial analysis 117

7.2.47 Oboronprom Corporation – overview 119

7.2.48 Oboronprom Corporation – Major Products 119

7.2.49 Oboronprom Corporation – recent announcements and strategic initiatives 120

7.2.50 Oboronprom Corporation – Alliances 121

7.2.51 Oboronprom Corporation – Recent Contract Wins 121

8 Business Environment and Country Risk 123

8.1 Economic Performance 123

8.1.1 GDP Per Capita, US$ 123

8.1.2 GDP (current US$ Billion) 124

8.1.3 Exports of Goods and Services (LCU Billion) 125

8.1.4 Imports of Goods and Services (LCU Billion) 126

8.1.5 Gross National Disposable Income (US$ Billion) 127

8.1.6 LCU per US$ (Period Average) 128

8.1.7 Market Capitalization of Listed Companies (US$ Billion) 129

8.1.8 Market Capitalization of Listed Companies (% of GDP) 130

8.1.9 Government cash surplus/deficit as % of GDP (LCU) 131

8.1.10 Goods Exports as a Percentage of GDP 132

8.1.11 Goods Imports as a Percentage of GDP 133

8.1.12 Services Imports as a Percentage of GDP 134

8.1.13 Services Exports as a percentage of GDP 135

8.1.14 Foreign Direct Investment, net (BoP, current US$ Billion) 136

8.1.15 Net Foreign Direct Investment as a Percentage of GDP 137

8.1.16 Mining, Manufacturing, and Utilities Output (LCU Billion) 138

9 Appendix 139

9.1 About SDI 139

9.2 Disclaimer 139

List of Tables

Table 1: Key Electronic Warfare Systems 16

Table 2: Key Tactical Attack Weapon Systems and Precision Guided Munitions Projects 18

Table 3: Key Long Range Ballistic Missile Programs 19

Table 4: Ongoing Nuclear Delivery Platform Programs 21

Table 5: Ongoing Naval Modernization Programs 22

Table 6: Key Air Force Modernization Programs 24

Table 7: Key Air Defense Programs 25

Table 8: Key Air Force Transport Aircraft Modernization Programs 26

Table 9: Key Programs for Development of Unmanned Systems 27

Table 10: Key Army Modernization Programs 28

Table 11: Russian Ground Forces Strength 30

Table 12: Russian Aerospace Defense Forces Strength 32

Table 13: Russian Naval Forces Strength 34

Table 14: Russian – On-going Development and Procurement Programs 36

Table 15: Russian – Future Procurement Programs 37

Table 16: Russian Defense Expenditure (RUB Billion & US$ Billion), 2013-2022 43

Table 17: Russian GDP Growth and Defense Expenditure as a Percentage of GDP Growth, 2013-2022 47

Table 18: Russian Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 49

Table 19: Russian Defense Capital Expenditure (RUB Billion and US$ Billion), 2013-2022 52

Table 20: Russian Per Capita Defense Expenditure (US$), 2013-2022 54

Table 21: Russian Homeland Security Expenditure (RUB Billion & US$ Billion), 2013-2022 55

Table 22: Terrorism Index, 2017 60

Table 23: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 63

Table 24: Russian Budget Formation Timetable 83

Table 25: Competitive Landscape of the Russian Defense Industry 87

Table 26: United Aircraft Corporation – Major Products 89

Table 27: United Aircraft Corporation – Alliances 90

Table 28: Sukhoi – Major Products 92

Table 29: Sukhoi – Alliances 95

Table 30: Sukhoi – Recent Contract Wins 95

Table 31: Splav – Major Products 97

Table 32: Tactical Missiles Corporation – Major Products 98

Table 33: Tactical Missiles Corporation – Alliances 99

Table 34: Tactical Missiles Corporation – Recent Contract Wins 100

Table 35: Almaz-Antey – Major Products 101

Table 36: Almaz-Antey – Alliances 102

Table 37: Almaz-Antey – Recent Contract Wins 102

Table 38: KBP Instrument Design Bureau – Major Products 104

Table 39: KBP Instrument Design Bureau – recent contract wins 105

Table 40: V.A.Degtyarev Plant – Major Products 107

Table 41: Kurganmashzavod – Major Products and Services 108

Table 42: Kurganmashzavod – Alliances 109

Table 43: Kurganmashzavod – Recent Contract Wins 109

Table 44: Uralvagonzavod – Major Products 110

Table 45: Uralvagonzavod – Alliances 111

Table 46: Uralvagonzavod – Recent Contract Wins 111

Table 47: Izhevsk Mechanical Works – Major Products 112

Table 48: Irkut Corporation – Major Products 114

Table 49: Irkut Corporation – Alliances 115

Table 50: Irkut Corporation – Recent Contract Wins 116

Table 51: Oboronprom Corporation – Major Products 119

Table 52: Oboronprom Corporation – Alliances 121

Table 53: Oboronprom Corporation – Recent Contract Wins 121

List of Figures

Figure 1: Russian Defense Expenditure (RUB Billion), 2013-2022 43

Figure 2: Russian Defense Expenditure (US$ Billion), 2013-2022 44

Figure 3: Russian GDP Growth vs. Defense Expenditure as Percentage of GDP Growth, 2013-2022 48

Figure 4:Russian Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 50

Figure 5: Russian Defense Capital Expenditure (RUB Billion), 2013-2022 52

Figure 6: Russian Defense Capital Expenditure (US$ Billion), 2013-2022 53

Figure 7: Russian Per Capita Defense Expenditure (US$), 2013-2022 54

Figure 8: Russian Homeland Security Budget (RUB Billion), 2013-2022 56

Figure 9: Russian Homeland Security Budget (US$ Billion), 2013-2022 56

Figure 10: Terrorism Heat Map, 2017 59

Figure 11: Terrorism Index 62

Figure 12: Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 64

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2017 and 2022 65

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2017 66

Figure 15: Space-Based ISR Market Size (US$ Million), 2017-2027 68

Figure 16: Transport Aircraft Market Size (US$ Million), 2017-2027 69

Figure 17: Multi-Role Aircraft Market Size (US$ Million), 2017-2027 71

Figure 18: Russian Defense Import Trend, 2012-2016 (TIV values) 73

Figure 19: Russian Defense Imports by Country (%), 2012-2016 74

Figure 20: Russian Defense Imports by Category (%), 2012-2016 75

Figure 21: Russian Defense Export Trend, 2012-2016 (TIV values) 76

Figure 22: Russian Defense Exports by Country (%), 2012-2016 77

Figure 23: Russian Defense Exports by Category (%), 2012-2016 78

Figure 24: Industry Dynamics Porter’s Five Forces Analysis 79

Figure 25: Irkut Corporation – Revenue Trend Analysis (RUB Billion), 2012-2016 117

Figure 26: Irkut Corporation – Operating Profit (US$ Million), 2012-2016 117

Figure 27: Irkut Corporation – Net Profit Trend Analysis (US$ Million), 2012-2016 118

Figure 28: GDP Per Capita in US$, 2015-2025 123

Figure 29: GDP (Current US$ Billion), 2015-2025 124

Figure 30: Exports of Goods and Services (LCU Billion), 2005-2014 125

Figure 31: Imports of Goods and Services (LCU Billion), 2005-2014 126

Figure 32: Gross National Disposable Income (US$ Billion), 2008-2013 127

Figure 33: LCU Per US$ (Period Average), 2015-2024 128

Figure 34: Market Capitalization of Listed Companies (US$ Billion), 2005-2012 129

Figure 35: Market Capitalization of Listed Companies (% of GDP), 2005-2012 130

Figure 36: Government cash surplus/deficit as % of GDP (LCU), 2003-2012 131

Figure 37: Goods Exports as a Percentage of GDP, 2005-2014 132

Figure 38: Goods Imports as a Percentage of GDP, 2005-2014 133

Figure 39: Service Imports as a Percentage of GDP, 2005-2014 134

Figure 40: Services Exports as a Percentage of GDP, 2005-2012 135

Figure 41: Foreign Direct Investment, Net (BoP, Current US$ Billion), 2005-2014 136

Figure 42: Net Foreign Direct Investment as a Percentage of GDP, 2005-2014 137

Figure 43: Mining, Manufacturing, Utilities Output (LCU Billion), 2005-2014 138