a long-term forecast of market prices for civil and military transport aircraft

ISSN 1075�7007, Studies on Russian Economic Development, 2010, Vol. 21, No. 4, pp. 380–392. © Pleiades Publishing, Ltd., 2010.Original Russian Text © A.V. Galchenko, V.A. Tegin, 2010.

380

Forecast of the cost of civil and military transportaircraft and helicopters. Growth in any sector of pro�duction depends on the quality of the forecast of themarket demand for its products. It is the starting pointfor justification and calculation of the credit amountsand allocations to production. A reliable forecast ofthe demand for aviation equipment requires, first,determining the range of possible contract prices, and,second, analyzing (in physical terms) the possibilitiesof its budget financing, as well as constraints on itspurchase.

1

The present authors examined in [1] the issues ofdevelopment and practical application of the forecastof the catalogue price for new civil aircraft and militarytransport aviation (CA and MTA) according to thedata of 1960–2005 statistics. As a basis, the parametricdependence of the cost of a passenger (transport) pro�duction airplane on its weight, year of manufacture,and (to a far lesser degree) cruising speed of flight wasused:

(1)

where C is the catalogue value (with τ = 1989 for thecountries of the first group, with τ = 2004 for the coun�tries of the second group) or the market value (with τ =1994 for countries of the first group, with τ = 2009 forthe countries of the second group) in million dollarsaccording to the current price of a fully equippedempty CA and MTA production airplane in its basedesign (airframe, engines, airborne equipment), T theyear of manufacture, τ is the reference mark�year, m0

is the weight of the empty airplane (tonnes), k = 0.115is the scaling factor, and V is the cruising speed of theairplane flight (kilometers per hour).

1 The primary purpose of this study is to reveal trends in the rise ofprices for new aviation equipment, so it omits issues of the sec�ondary market, as well as the problem of veracity of price infor�mation. Even specialized publications continue publishing dataon aviation equipment prices not tied to time. Such informationactually confuses its receiver.

C 1.1T τ– m0kV1/3,=

The analysis of the available array of catalogueprices for CA and MTA airplanes has revealed a rate ofprice growth fixed for all manufacturers of aviationequipment that is about 10% per year, according toformula (1). Also, it has turned out that the countriesmanufacturing aviation equipment are divided intotwo groups: for the first group, the 1989 mark�year ofcalculation of the catalogue value of airplanes is taken(i.e., the United States, Canada, the countries ofWestern Europe); for the second, the mark�year of2004 (Eastern Europe and China). It is because in thereference mark�year the catalogue value of airplanes(in million dollars by the current rate) numericallyabout equals (neglecting the insignificant influenceof V) its weight (in tonnes), i.e, C ≈ m0.

However, the catalogue value is but “a thing initself” or even an abstract notion, not identical to theanalogue of the market value. For this reason, the pos�sibility was examined to apply dependence (1) cor�rected for the forecast of the market value and its con�tract prices for CA and MTA airplanes. The result waschecked against specialized sources of information[2–13] containing records on fully completed con�tracts on deliveries. Over 70 highly reliable records forthe period of the 1960s through 2008 for the countriesof the first group and over 50 records for the countriesof the second group have been analyzed. The analysishas allowed us to make the following conclusions.

The contract prices of the delivered models depend ontheir weight and the year of manufacture in accordancewith formula (1). Specified is a 10% (or 8.7% by therecent data) growth of value per year (in current dollarprices) for the delivered aviation equipment.

The conclusion (see [1]) about the lower averagelevel of contract prices for aviation equipment in thecountries of the second group (Russia, etc.), which bythe refined data is about 30% relative to the countriesof the first group (United States, etc.) with the samegrowth rate, was confirmed. In other words, the con�

A Long�Term Forecast of Market Pricesfor Civil and Military Transport Aircraft

A. V. Galchenko and V. A. TeginReceived May 4, 2009; in final form December 4, 2009

Abstract—The paper briefly examines the procedures to forecast the price of aircraft and helicopters andtheir results in calculating aircraft deliveries. It formulates a hypothesis about the existence of two world sys�tems of price formation. Some features of price determination in the aircraft market are indicated.

DOI: 10.1134/S1075700710040052

INDUSTRIES AND INTERINDUSTRY COMPLEXES

STUDIES ON RUSSIAN ECONOMIC DEVELOPMENT Vol. 21 No. 4 2010

A LONG�TERM FORECAST OF MARKET PRICES 381

Fig. 1. Factual array of prices for planes by year of manufacture:trend of contract prices of planes (⎯):(1) countries of the first group (United States, etc.);(2) countries of the second group (Russia, etc.);contract price for planes:( ) countries of the first group; ( ) countries of the second group;catalogue price of planes “shifted” by five years:(�) first group countries; (�) second group countries.

clusion is a backwardness of about 15 years in the levelof the domestic prices for similar aviation equipment.

Contract prices were 1.4–1.5 times lower than thecatalogue ones, so that, to compare them, the initialformula has to be corrected by about five years, withthe reference start date shifted to a later one (for air�planes of the first group countries from 1989 to 1994and for the second group countries from 2004 to2009).

Formula (1) was found to be applicable for forecastcalculations of market value of not only airplanes butalso helicopters. The reference calculation date of themarket value of helicopters was 1989 for the first groupcountries and 2004 for the second group countries.

The validity of conclusions is illustrated by the fac�tual data array on contract prices for CA and MTA air�planes for the second half of the 20th to beginning ofthe 21st century in Fig. 1. In connection with a directrelationship of the price C and mass m0 of the manu�factured airplanes, it is reasonable, in order to use for�mula (1), to introduce a comparison of CA and MTAwith respect to the parameters of the contract’s spe�cific price (Y):

Y = C/m0. (2)

This array of data is obviously divided into twofields, with records on the countries of the first andsecond groups. In each of these parts, similar trends inchanges of the specific market prices by the yearly

growth rate, i.e., 8.7% (validation of the first conclu�sion), are found. The trends about which price fluctu�ation takes place practically coincide, but are shiftedby 15 years relative to each other (validation of the sec�ond conclusion). For illustration, Fig. 1 shows also thetrends of the catalogue specific prices of aviationequipment through 2007, “shifted” to a later (fiveyears) date, similarly to the shift of the reference datein calculation of the market value (according to thethird conclusion).

Figure 2 gives the clarified factual array of contractspecific prices YV, i.e., accounting for the removedeffect on the price of the value of the cruising speed Vof each model according to formula (1):

YV = C/(0.115 m0V1/3). (3)

It is obvious that, upon comparison of relationshipsin Figs. 1 and 2, the “airplane” trends do not differmuch, which is explained by weak influence of V on Y.In addition to the factual array and the trend of thespecific contract prices of airplanes, in Figure 2 a sim�ilar array and the trend of specific prices of CA andMTA helicopters is added.

Figure 3 shows the same factual array (see Fig. 2)reduced to logarithmic form, which considerably sim�plifies the procedure of forecast processing of thetrends.

Y4

3

2

1

0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

y = 1.087 (T–1994)

T

(1)

y = 1.087 (T–2009)

(2)

382


GALCHENKO, TEGIN

The obtained trends are averaged indicators, rela�tive to which contract prices fluctuate. In accordancewith theory, such a determination corresponds to the

definition of market value. Therefore, the trends arean approximation to the parameter of the market valueof the aviation equipment.

Fig. 2. Factual array of prices for aviation equipment by year of manufacture:price trends for aviation equipment refined by formula (3) (⎯):(1) for helicopters of the first group countries (United States, etc.);(2) for planes of the first group countries (United States, etc.);(3) for helicopters of the second group countries (Russia, etc.);(4) for planes of the second group countries (Russia, etc.);contract price for helicopters:( ) countries of the first group; (�) countries of the second group;catalogue price for helicopters “shifted by five years:(�)countries of the first group; ( ) countries of the second group (the remaining notation see in Fig. 1).

Yv

0.1

0.01

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

y = 1.087 (T–1989)

T

y = 1.087 (T–1994)

10

1

y = 1.087 (T–2004)

y = 1.087 (T–2009)

Fig. 3. Factual array of contract prices, their trends, and catalogue prices for aviation equipment shifted by five years by year ofmanufacture in a system of coordinates with the YV axis reduced to logarithmic form (notation see in Figs. 1, 2).

Yv

4

3

2

1

0

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

y = 1.087 (T–1989)

T

(1)

y = 1.087 (T–1994)

(2)

8

7

6

5

y = 1.087 (T–2004)

(3)y = 1.087 (T–2009)

(4)



As a result of processing the trends with allowancefor the financial values of each contract, the obtainedmean square deviation of the contract prices from thecalculated market value of CF and MTA airplanes ofthe first group countries is below ±10% (roughly±1 year) and up to ±20% (roughly up to ±2 years) tothe value of helicopters.

The factor of the existence of two segments in theworld air market and differences in prices for aircraftmodels. The factor underlying differences in the for�mation of prices for aircraft products between thecountries of the first and second groups is, accordingto [14, 15], the relationship of the per year rate of pricerise to per year increase in labor productivity and,accordingly, to the per unit labor remuneration inthese countries. Therefore, higher prices of aircraft arebased on the generally higher living standards and onlypartially on the direct improvement of quality. Thisconclusion “erodes” the generally accepted mutualrelationship between the notions “expensive” for“high quality” products and “cheap” for products of“substandard quality.” It seems reasonable to replacethe notion of “the higher price of product according toits better quality” by “the higher price of product dueto the constantly increasing costs of its manufactureand market promotion”.

However, with the existence of the two systems inprice formation for aviation industry products (thefirst and second group of countries), the primarycauses for the persistent 15 year lag of prices in the sec�ond group of countries, lasting over several decades,remain unclear. The explanation can be the existenceof two rather isolated sales markets with identical peryear price rise for their products.

The aircraft market with prices of the second groupof countries now has good positions in the world, andthere are good prospects for expansion of its geogra�phy, because the exponential rise in prices for expen�sive aircraft of the countries of Western Europe, theUnited States, Canada, and Japan forces buyers tolook for other alternatives. However, whatever eco�nomic depressions or revivals, the next decade will seean utter quantitative (not financial) decrease in thepurchases of new aircraft by most of the countries ofthe world (see graphics 1, 2 in Table 2), because therate of their economic growth and per capita incomeof the population (who are ultimate payers for the pur�chases and operation of aircraft) is, as a rule, alwaysbehind the 9% per year rise in aircraft prices.

Superficially, this creates for Russian aircraft man�ufacturers favorable export opportunities. However, ifinside the country the preference is given to importedairplanes, the domestic products will hardly find amass foreign purchaser. The described situation willnaturally not last for long, because by aircraft price,again, Russia lags behind all told by 15 years. It is pos�

sible to state for sure that, if a country cannot forfinancial reasons replenish its fleet of civil or militarytransport aviation with new models of Western air�craft, in 15 years it will be unable to replenish it evenwith Eastern aircraft.

However, the real process of price formation foraircraft in particular countries is not always accordingto the above�described scheme. Thus, Poland, Roma�nia, and Czech Republic, i.e., countries of the secondgroup, are trying to come over to the first group. Butthe formation of prices for their aircraft has so far beendeveloping by the system existing in the countries ofthe second group. The price of the manufacturedRomanian clones of French helicopters is formed alsoby the system inherent in countries of the secondgroup.

Another example is Indonesia, manufacturingCN�235 airplanes by Spanish technology within theframework of the joint company Air Track. The forma�tion of prices in this case is yet more characteristic ofcountries of the first group. This is due to its closecooperation with the Spanish KACA firm, which hasobtained because of it the possibility also to noticeablyreduce the prices for its products (C�295).

Comparison of price parameters, fixed and calcu�lated by formula (1), of the new aircraft models is givenin Table 1. The calculation was performed for 2009output, provided that the investment and building ofeach particular specimen takes one to three years, or ifthe year 2009 is the average year in manufacture of theseries ordered by the customer.

The calculation of the market cost of specimensallows verification of the contract conditions beingplanned for aircraft delivery. As an example, we con�sider the contract of the US government for the deliv�ery of 167 V�22 heliplanes in the 2008–2012 period fora total sum of $10.4 billion. The price of $62 millionplanned by the contract is roughly the estimated mar�ket cost of the model, i.e., $60 million (deviation fromtheory is 3%). The second example is the contract ofthe government of India for delivery of six C�130J�30airplanes in the 2010–2011 period at a total cost ofover $962 million. The price of $160 million per spec�imen planned by the contract is noticeably above itsestimated market cost of $140 million, which can beexplained by the features of the concluded agreement(deviation is 13%). The third example is the Europeanproject for a delivery of 192 advanced BTA A�400 air�planes to the alliance of countries for a total of$29.5 billion. The planned contract cost of $154 mil�lion per specimen is hardly comparable to the esti�mated market cost of the airplanes built in the 2007–2015 period, i.e., a minimum of $284 billion (devia�tion not less than 87%). No comment is needed; theproject is not realizable within this framework.

384


GALCHENKO, TEGIN

Table 1. Value characteristics of present civil airplanes and helicopters

Airplane type

Calculated value/actual contract

price of 2009, $ million

Weight, t Country exporter Cruising speed, km/h

Year of start of operation

A 1 2 3 4 5

Airplanes*

A�380 ~1109 ~280 France ~850 2008

Boeing 747 698 173 United States ~900 1971

An�124 198 172 Russia/Ukraine 780 1982


A�330(340) 575(515)/233** 120(130) France ~850 1992

C�17 474/453 122 United States 800 1992

Il�96 139/70** 117 Russia 880 1993

Il�76 ~115/107 ~100 Russia 780 1974

Boeing 767 324/326 82 United States 850 1982

A�310 306 77 France 860 1983

An�70 ~80 ~70 Ukraine 780 2012

A�400 ~240/236*** ~65 France 680 2013

A�350 ~257 ~65 France ~850 1992

Boeing 787 ~236 ~60 United States 850 2009

Tu�204(214) 65.8(67.5)/44.5** (65) 58(59) Russia 830 1996

A�321 186 47 France ~850 1993

Boeing 727 182 46 United States 870 1971

A�320(319) 166(156)/90** 42(40) France ~850 1988

MC�21 ~42 ~35 Russia 860 2012

C�130J 117/122 33 United States 650 1998


Tu�334 ~32.7 ~28 Russia 810 2010

Su�100 ~27−50/32.5*** ~23 Russia 780 2010

An�148 ~25 ~21 Ukraine 870 2010

An�72(74) 19.9/20.1 19 Ukraine 570(680) 1985

F28 70 18 Netherlands 800 1968

An�32 15.5/6** 17 Ukraine 500 1982

C�27 48/46 16 Italy 440 1975

V�22 52/55.3 15 United States 560 1999

Il�114 14.9 15 Uzbekistan 500 1998

MA60 14/14 15 China ~450 2008

C�295 ~39/40 ~12 Spain 460 1998

F27 36 11 Netherlands 460 1965

An�140 ~12.4/12 ~12 Ukraine/Russia 570 2002

EBM 145 to 41.5/~34 ~11 Brazil ~740 1996

Cn�235 to 26/24 8 Indonesia 460 1986

Helicopters****

Mi�26 32.5/34.3 28 Russia 255 1981



Some retrospective features in the formation of con�tract prices for airplanes and helicopters of civil andmilitary transport aviation. Fluctuations of contractprices are of a random, stochastic nature. At the sametime, to a high degree, they are determined by a num�ber of recurring factors revealed in the analysis of theabove�mentioned array of records on completed con�tracts.

An often occurring, in settlements with the cus�tomer, yearly situational price deviation is compen�sated by the opposite deviation in the next year (years)in prolongation of the contract. These deviations canremain stable over a fairly long period of time. Anexample is the C�295 of Spanish manufacture, nowrapidly growing in price, the contract prices of whichin 2004–2007 being about $20 million increased in2008–2009 almost to $50 million at a sufficientenough work load [16]. The obviously underestimated

price (about $30 million) of a heavier and moreadvanced Italian C�27 did not hold for long. Thus,already in the contract in delivery of three aircraft toLithuania in 2006–2007, their price increased to$39 million.

A considerable influence on the price is likely to bemade by compensation for its deviation at the expenseof another customer. An illustration is examples ofcontracts (see [4, 5]) on deliveries of American BlackHawk S�70A�42 helicopters to Austria in 2002 (nineunits at $20.33 million each) and S�70A2�55 helicop�ters to Israel in 2002–2003 (24 units at $8.83 millioneach) at an estimated cost of $12 million. The influ�ence of political interests on prices is quite certain, forexample, the drop in price, at the expense of the bud�get, in deliveries of equipment from the United Statesto member countries of the programs fighting terror�

Table 1. (Contd.)

Airplane type

Calculated value/actual contract

price of 2009, $ million

Weight, t Country exporter Cruising speed, km/h

Year of start of operation

A 1 2 3 4 5

CH�47 43/55 11 United States 260 1962

EH 101 39/50 9.4 Italy 280 1996

Mi�8(17) 8/8 7.2 Russia 250 1966

Ka�32 ~8.4/9.4 ~7.5 Russia 250 1982

S�92 28/25 7 United States 250 2002

NH�90 24.8 6.2 Germany 250 2007

S�70A 20.7/26 5 United States 290 1977

AS.332(532) 20(18)/20.4(21.6) 5(4.5) France 260 1980(90)

W�3 4.2/4.1 3.9 Poland 220 1985

S�76 15 3.7 United States 260 1979

IAR 330 L 4.2/4.9 3.6 Romania 260 1967

AB 139 13.6/17 3.3 Italy 270 2003

UH�1N 10/9.5 3 United States 190 1979

Ansat 2.4/2 2 Russia 240 2008

ES�145 6.9/8.9 1.8 France 230 2000

AW�100 6.5/8.7 1.7 Italy 240 1976

Dhruv 7/7 1.6 India 2008

ES�635 6.0/6.3 1.5 France 240 1969

ES�135 5.8/9.5 1.5 France 230 1996

Notes: * Weight of ordinary plane, minimum 8 t. ** Dumping prices (1998–2004 year of manufacture). *** Catalogue price of 2009. **** Weight of an empty helicopter, minimum 1.5 t.

386


GALCHENKO, TEGIN

Table 2. The refined forecast of the MTA number of a number of countries (from the international press)

Country

Number of MTA planesAverage plane weight

in 2007 (tonnes)

2007 2022 (forecast I basic)

deliveries 2008–2022

(forecast I basic)

2022 (forecast II optimistic for the countries of West�

ern Europe, United States, Canada


(forecast II opti�mistic)

A 1 2 3 4 5 6

United States 1100 610 + 110 340 740 + 110 470 57

China 201 370 280 370 280 33

Russia 628 120 + 250 110 120 + 250 110 55

Australia 48 45 + 4 30 50 + 4 36 31

Great Britain 78 40 + 5 20 50 + 5 27 43

India 237 210 + 15 30…110 (150…210) + 15 43…110 28

Canada 36 28 + 3 17 33 + 3 23 42

France 117 (44…120) + 7 27…94 (63…120) + 7 36…94 26

Italy 48 38 + 4 21 46 + 4 29 26

Germany 96 27…62 15…50 34…55 21…50 31

Indonesia 49 (24…82) + 5 20…78 (35…82) + 5 31…78 23

Greece 36 31 + 5 12 35 + 5 17 36

Saudi Arabia 50 (18…45) + 13 11…38 (22…45) + 13 15…38 36

Spain 42 38 + 5 22 46 + 5 30 17

Brazil 40 (24…63) + 11 16…55 (29…63) + 11 22…55 23

Iran 84 80 + 8 56 80 + 8 56 21

Algeria 17 (16…47) + 5 12…43 (20…43) + 5 17…43 27

Nigeria 16 (12…41) + 4 12…41 (16…41)+ 4 16…41 27

Republic of Korea 33 25 + 7*3 19 35 + 7 29 17

Turkey 80 52…95 17…60 58…95 23…60 17

Egypt 42 (13…39) + 10 10…36 (17…39) + 10 11…36 28

Pakistan 31 (8…24) + 3 7…23 (10…24) + 3 9…23 26

Taiwan 26 19 5 21 7 33

Ukraine 214 10 + 120 10 10 + 120 10 54

United Arab Emirates 24 (13…23) + 3 4…14 (15…23) + 3 6…14 39

Columbia 13 9 + 2 6 8 + 2 8 25

Venezuela 17 20 + 3 17 20 + 3 17 29

Chili 10 (6…14) + 1 3…11 (8…14) + 1 5…11 48

Morocco 29 (10…22) + 7 5…17 (13…22) + 7 8…17 27

Angola 18 19 + 2 14 19 + 2 14 32

Poland 24 (15…25) + 3 6…20 (25…25) + 3 8…20 21

Israel 23 3…9 3…9 4…9 4…9 40

Japan 30 (5…17) + 5 5…17 (7…17) + 5 7…17 23

Mexico 20 (8…18) + 4 4…14 (10…18) + 4 6…14 29

Thailand 21 (11…22) + 4 4…15 (13…22) + 4 6…15 26

Belgium 17 (7…15) + 5 3…11 (8…15) + 5 4…11 32

Belarus 29 5 + 15 5 5 + 15 5 65

Ecuador 16 13…21 3…11 15…21 5…11 29

Malaysia 26 (20…43) + 3 9…32 (22…43) + 3 11…32 26



Table 2. (Contd.)

Country

Number of MTA planesAverage plane weight

in 2007 (tonnes)

2007 2022 (forecast I basic)


(forecast I basic)

2022 (forecast II optimistic for the countries of West�

ern Europe, United States, Canada


(forecast II opti�mistic)

A 1 2 3 4 5 6

Czech Republic 11 (1…3) + 2 3…12 (5…12) + 2 1…12 26

Portugal 9 (5…11) + 3 3…9 (5…11) + 3 3…19 26

Peru 42 23 + 3 13 23 + 3 13 21

Philippines 18 (7…16) + 3 3…12 (9…16) + 3 5…12 23

Argentina 26 (3…7) + 2 2…6 (3…7) + 2 2…6 34

Norway 6 (2…7) + 2 2…7 (3…7) + 2 3…7 33

Republic of South Africa 26 (4…11) + 2 3…10 (5…11) + 2 4…10 20

Sweden 13 (3…7) + 3 2…6 (3…7) + 3 2…6 29

Jordan 10 (4…11) + 3 3…10 (5…10) + 3 4…10 19

Libya 66 20 + 25 4 20 + 25 4 56

Uzbekistan 47 10 7 10 7 27

Yemen 18 12 + 1 5 12 + 1 5 33

Democratic People’s Republic of Korea

18 4 + 4 4 4 + 4 4 37

Denmark 6 6 2 6 2 21

Syria 12 10 + 7 3 10 + 7 3 43

Singapore 5 (1…4) + 2 1…4 (2…4) + 2 2…4 33

Kuwait 4 (1…3) + 1 1…3 (1…3) + 1 1…3 33

Tunisia 12 (9…13) 1…5 (10…13) 2…5 30

the Netherlands 3 3 + 1 1 3 + 1 1 28

Serbia 12 3…8 2…7 3…8 2…7 14

Romania 11 (6…9) 1…4 (6…9) 1…4 23

Bolivia 12 (1…3) + 3 1…3 (1…3) + 3 1…3 23

Kazakhstan 36 5 3 5 3 22

Vietnam 16 5 5 5 5 14

Ethiopia 15 2 + 2 2 2 + 2 2 30

Cuba 11 4 + 5 2 4 + 5 2 30

Myanmar 6 3 3 3 3 17

Finland 3 1…3 1…3 1…3 1…3 11

Bulgaria 9 (2…3) + 4 0…1 (2…3) + 4 0…1 17

Switzerland 3 (0…1) + 2 0…1 (1…1) + 2 1…1 12

Hungary 5 (0…1) 0…1 (0…1) 0…1 15

Notes: 1. Counties are given in the rating sequence in accordance with the forecast value of their purchase of planes in 2008–2022.2. The weight of MTA planes over 8 t.3. The weight of planes by the basic and optimistic forecasts according to the average weight of planes in 2007.4. In the table, the data on planes with service life over 30 years are marked.5. In the table, for the number of planes, the following graphical notation is used:

⎯of mostly European design—bold, underlined;⎯of mostly Russian, Ukrainian (Soviet before 1992) design—bold;⎯of mostly US design—bold italics, underlined.

388


GALCHENKO, TEGIN

ism and the drug trade (to Columbia in 2001, to Thai�land in 2002–2005).

One should specially mention the rather frequentcases of considerable (several times as high) rise ofprices in deliveries to such rich countries as Saudi Ara�bia (for example, the deliveries of French CougarAS532U2 helicopters in 1998–2001). In rare cases,the considerable price deviations on small contractscan be explained exclusively by actions of firms ofdealers.

The declared price on the agreed contract, as itturns out, has been lately not always the final specifiedvalue. In declaration of the price on the contracts inoperation, a tendency has appeared to “hide” a con�siderable part of it behind the consequent services,providing the beginning of operation of new speci�mens of CA and MTA. Thus, the declared contractvalue in purchase of four C�17 aircraft ($780 million)in the Australian contract for deliveries in 2006–2008[2, 3] was underestimated by half, including, as wasproved, the so called “total price of purchase”(roughly $1.5 billion) booked presumably by otherchannels of budgetary financing [6]. In contrast tothis, the Canadian contract of 2007–2008 was fullydeclared, i.e., $1.6 billion for four similar machines[7]. Close to this sum is also the total value of the pro�gram of purchase of six C�17 airplanes by British AirForce with deliveries in 2001–2008, which is today$2.4 billion [7]. In addition, in cases, for example, ofsuch contracts as for C�17, one should take intoaccount that these machines were delivered withinlarge government programs, calculated for decades. Inaccordance with this, the foreign participants of theseprograms were to receive the products at a middleprice, which is close to the cost of an aircraft producedin the middle year of the program, i.e., in 2003.

Such are advantages of timely forward financing.However, the same factors, in the view of O. Panteleev,the manager of AviaPort analytical services, have actednegatively and led to the failure of Ukrainian deliveriesof An�140 aircraft to Iran: “Iran was not prepared tofinance at a priority rate the deployment of the localassembling infrastructure and manufacture of ma�chine sets of the An�140 in Kharkiv, while the Kharkivaircraft factory has also turned out not to possess therequired resources for advanced financing of a large�scale production of the constituent parts by itself ortheir purchase on the side” [17].

The cost of aircraft of the East European countriesand China over the last 50 years has been no more thanone�third of the analogues from Western Europecountries and from the United States. At the sametime, since the beginning of the 1990s, the products ofthe domestic aircraft industry have been found in a sit�uation of keen competition with Western second�handaircraft, as a result of which the price had to be fixed at

a still lower mark. An important factor of considerableadditional underestimation was the possibility of usingin production of such airplanes like the Il�76, Il�96,An�32, An�124, and (to a lesser degree) An�72/74 theconstituent parts and resources of the still Soviet pro�duction. This practice, along with the consequentsales crisis, was just that which has led to lower pro�duction and price decreases already for new liners, forexample, for the Tu�204 and Tu�334, and this processcontinues even now. It should be admitted that thepractice of price dumping allowed the Russian avia�tion industry to survive in the 1990s, especially incompetition with foreign second�hand airplanes; butat present it hinders innovative development of thesector. Such a price policy compels offering the marketthe airplanes of past years of manufacture, whichentails a number of problems in crediting such a longproduction cycle, physical and moral outdating of thedesign, and even the prejudice spread by the mediathat these airplanes are derelicts of the aviation mar�ket. This practice of price dumping, as will be shownbelow, has already taken deep roots in the activity ofthe Boeing and Airbus companies.

By this time, the ties between the domestic struc�tures of civil aviation and the aviation industry havebeen broken. The current lamentations of the manag�ers of the Russian operator companies and their lobby�ist deputies about the impossibility of the domesticaviation industry to supply immediately the requirednumber of up�to�date (and by all means cheap) air�craft are very suspicious [18, 19]. Recall the typical sit�uation for the sector 15 years back. From 1990 to 1996,the result of the developments of the Tupolev AircraftScience and Technology Complex (ASTC) was manu�facture of 23 Tu�204/214 aircraft, the most up�to�dateaircraft at that time. At the same time, over seven years,no more than nine specimens were sold to operators; tenfinished specimens and another eight specimens at thestage of assembly remained at the Ulyanovsk aircraft fac�tory [20]. The operators preferred to buy second�handforeign machines, which allowed them at that moment toeconomize and not spend on finishing the new “raw”domestic designs, reduce operating costs, and provideprofits to the dealers. Today the situation is quite oppositeto that in the 1990s, but the result remains the same. Theoperators of aircraft, owing to their sector egoism, short�sightedness, and pursuit of immediate profit, are defi�antly not interested in the development and manufactureof domestic aircrafts (first of all, long haul aircrafts).Today all failures will be ascribed to the global economiccrisis.

The fact of dumping prices by using the “inhibited”production process can be shown in a case from [13].At the beginning of 2009, a Tu�204CE no. 64037 air�craft was shipped to a Cuban aviation company; themanufacture of this plane, according to its number,was started in the middle of the 1990s and continued



with intervals for more than 10 years. So its priceroughly corresponds to the price of the average year ofits production, which is five or seven years back; it isalmost half the current price calculated for a Tu�204 ofthe 2009 year of manufacture. We should note thatsuch facts are becoming rare events in the domesticpractice, and the following deliveries in the same yearof 2009 were Tu�204 aircrafts with production num�bers 64050 and higher. This tendency is due to deple�tion of post�Soviet reserves of nonfinished manufac�ture. In the practice of Western aviation, the oppositetendencies are observed. The crisis of overproductionleads to “freezing” the rate of manufacture, as a resultof which the full cycle of the construction of speci�mens is prolonged for years, which becomes obvious incomparing the planned and real dates of production ofthe aircraft of new brands.

The current situation: dumping policy of boeing andairbus. As already mentioned, the Russian practice ofprice dumping has been borrowed and successfullyapplied in competition by the leading world manufac�turing firms. These facts are so alarming that they needspecial consideration.

By the analysis of the data of the past 50�yearperiod, the catalogue prices have always been 25–30%above the contract prices for the supplied aircraft.According to [13], the lower level of catalogue prices isdue to discounts; their size has always been a topsecret. However, by now there are signs of catalogueprices lately deviating from the established system.Figure 4 shows the catalogue and contract specificprices of the aviation giants Boeing and Airbus for

2008. Pay attention that, in the 20th century, the air�craft catalogue prices of the Western Europe countries,United States, and Canada exceeded those deter�mined by the trend of specific value, and in 2008 thecatalogue prices already became much below thetrend.

In addition, by the middle of the decade, there wasa tendency to a considerable decrease also in the con�tract price for these aircraft in competition with air�craft of the countries of Eastern Europe and China. Inthis connection, let us consider a concrete fact of thedelivery of two new, by all published references,A�319CJ cargo�passenger aircraft to the Air Force ofthe Czech Republic in 2007 at $77 million [2] (theirprice was $58.5–69.5 million by the 2008 catalogue[13]). The price by the catalogue is far below the con�tract one, and both prices are much lower than the cal�culated one ($132 million) determined in accordancewith the basic forecast by formula (1) (Table 2). Thesecond case is also from Airbus and its A�330 tankeraircraft, advertised for equipping the air forces ofmany countries, including the United States. In2008–2009, it was supplied to Canada at a catalogueprice of $214 million (the calculated price was $550million). At the same time, its less massive (by a factorof 1.5) American analogue KC�767 is sold at $300 mil�lion (the catalogue price $128–173 million, the calcu�lated price $312 million). These facts validate the con�clusion that the actual production of Airbus aircraft ofthese lots was either 7–10 years before the sale, orthere is an unprecedented dumping (lowering of theprice by a factor of 1.5–2) caused, according to somedata, by the lower rate of price rise for aircraft in 2005–

Yv

1

0

1985

1990

1995

2000

2005

2010 T

y = 1.087 (T–1994)

4

3y = 2.6 × 1.025(T–2007)

y = 1.087 (T–2009)2

2015

2020

Forecast I basic

Forecast II optimistic

Fig. 4. Factual array of contract and declared catalogue prices for planes by year of manufacture and the trends of contract pricesrefined by formula (3) (notation see in Figs. 1, 2).

390


GALCHENKO, TEGIN

2007 from 8.7 to 2.5% per year and by the sale inaccordance with a forecast that is optimistic for con�sumers from the countries of Western Europe, theUnited States, and Canada (Table 2).

The possibilities for the two world aviation giants tofinance dumping are obvious. Scandals are constantlyarising in which the Americans accuse the Europeansof the use, for example, of “starting payments” fromthe states supporting their “continental” manufac�turer, and the Europeans point to the federal and localaid to the Boeing 787 program, and resources are flow�ing from military and NASA orders [13].

It is significant that Russia, purchasing foreign air�craft, finances, among others, the dumping oppositionof the two aviation giants. Two�thirds of aircraft thathave come to Russian aviation companies are mediumhaul narrow�bodied liners, which could have beensuccessfully replaced by domestic analogues.

In our opinion, dumping (and, possibly, corrup�tion), along with the current world crisis, is having ahighly destructive effect on the domestic aviationindustry. In 2008, Atlant Soyuz and Aeroflot�Cargorefused one after the other ordered and built Il�96planes. Aeroflot purchased 11 new A�320 and twoA�330 airbuses (the share of foreign brands in the avi�ation fleet of the leading national carriers exceeded66%). The second largest Russian company Sibir hasacquired four new A�320s and thus has equipped itselfwith 100% foreign brands (a similar situation exists forTransaero, i.e., 95% foreign brands). Air�Bridge haspurchased two new Boeing 747s. To this, over 80 sec�ond�hand aircraft of Western manufacture of 1987–

2002 must be added.2

No doubt, one of the causes for dumping is alsolower demand, but, in addition, it is likely that sinceabout 2005–2007 the annual rise of market prices forsome CA and MTA specimens of the first group coun�tries has sharply dropped from 9 to 2.5–3%. The pos�sibilities of price dumping were able to arise after theintegration in the 1990s of part of Eastern European,in particular, Russian, enterprises in the system ofwestern aviation production, which created precondi�tions for lower cost of products. Indirectly, this isshown by the time of appearance of signs of pricedumping, i.e., the middle of the first decade of the21st century, which can be explained by the 15�yeartemporary lag [1] of the reaction to the investments inthe 1990s. Thus, the Verkhnesaldinskoye Metallurgi�cal Production Association (VSMPO) alone (since

2 “The carrier purchasing a considerable number of foreignmachines and building around them a whole system of person�nel training and material and technical support will hardly infive or ten years change horses at the crossing; the payment willbe too high (business in our country is not known for its patrio�tism)”; in 2007, this was stated quite clearly in so many words byValerii Okulov, the former head of Aeroflot [21]).

2007, 60% of shares have been bought by Federal StateUnitary Enterprise Rosoboroneksport) provides up to40% of Boeing’s needs for titanium, 60% of EADS’sneeds, and 100% of Embraer’s needs (data from theVSMPO report [22]).

The specified forecast of the number of militarytransport aircraft in the national air forces in 2022. Thefleets of military transport aviation (MTA) arefinanced by allocations according to the appropriateitems of expenditures of the national military budgets(NMBs), which are roughly proportional to the totalinvestments in aviation. The quantity of MTA of thenational air forces (NAFs) to 2022, i.e., N22, were cal�culated by a method based on the hypothesis of pro�portionality of changes in NMBs and expenditures onpurchases of aircraft:

(4)

where η = 1.01–1.03 is the average yearly coefficientof technical losses by evaluation statistics of decreasein the number of the MTA planes; N93�07 the numberof planes of a weight of over eight tonnes in the MTAof an actual country in 2007 of 1993–2007 produc�tion; μ ≈ 1.025 is the average yearly coefficient of USdollar inflation [24]; N�93 is the number of aircraft inthe MTA of an actual country in 2007 of productionbefore 1993, constructively calculated for a lifetime upto 2022 (for example C�130H, Il�72); T ≈ 2015 is theconventional year of delivery of the production air�plane (approximately equal to the half�sum of the pre�dicted years of the start and end of the serial produc�tion in the 2007–2022 period); S08�22 is the predictedcost ($ million) of the purchased serial airplane atdate T; C78�07 is the cost ($ million) of the delivery ofplanes included in the MTA of an actual country in2007; Bav93�22 is the average NMB for the 1993–2022period (forecast); Bav78�07 is the average NMB over the1978–2007 period; and C93�07 is the cost ($ million) ofthe delivered airplanes in the MTA of an actual coun�try in 2007 built in 1993–2007.

In the forecast of the number of MTA, the data byNMBs and aviation fleets before 2007 [23–28] areused. The conventional period of the purchase of newairplanes is 2015, which allows the increase in thenumber of the purchased equipment of earlier years ofproduction and vice versa. The predicted number ofairplanes can be increased by an inversely proportionaldecrease in their weight.

The analysis of the forecast (see Table 2) shows thatthe quantitative set of MTA transport aircraft of the airforces of most countries to 2022 will decrease. Anexception is China, the growth of the military budget

N22 η15– N93�07 η

15– N�93+≈

+ C78�07Bav93�22/Bav78�07 C93�07–( )/ μ2022�T( )S08�22( ),



of which is much over 10% per year. Some countrieswill manage to retain the present level (Australia,Algeria, Angola, Venezuela, Greece, Denmark, India,Spain, Italy, Canada, Columbia, Malaysia, Nigeria,the Netherlands, Republic of Korea, Syria). Suchcountries as Brazil, Indonesia, Iran, and Turkey willbe able to retain the numerical strength by organiza�tion of their own aircraft production or by buyingthem from the countries of the second group. The lat�ter concerns also almost all other countries, includingmost countries of the European Union, Argentina,Egypt, Israel, Jordan, Mexico, United Arab Emirates,Saudi Arabia, Republic of South Africa, and Japan.The situation in these countries can be explained bythe influence of the limited military budgets of theleading world countries in the 1990s (accounting forthe 15�year lag) and by the insufficient rate of theirgrowth at present.

CONCLUSIONS

Thus, the cases of China and other above�men�tioned countries show that attempts to retain thequantitative composition of MTA should lead either toan increased military budget (or, at least, its share allo�cated to the purchase of MTA), or to purchases fromthe countries of the second group (Russia, Ukraine,China), or to application of both measures. However,note that the equipping of air forces with MTA aircraftis nowhere in the world thought of as a priority task ofmilitary budgets, so any increase in the share allocatedto this purpose can hardly be expected. In this connec�tion, signs of serious interest in the purchases of theUkrainian aircraft have appeared even in the leadingNATO countries [29]. In the near future, the possibil�ity of production of these aircraft within westernbrands has appeared. Russian Mi�8/17, Mi�26,An�26, and An�124 aircraft are used in the interests ofthe coalition of allies in Iraq and Afghanistan. Indeed,in the United States, the national program of produc�tion of MTA airplanes is limited to the heavy C�17, theproduction of which is at present ending; the mediumC�130 (being modernized for already over 50 years),the deliveries of which also seem to be close to com�pletion; and the still being developed light V�22 heli�planes, the production of which is likely to be reducedin comparison to the former plans. In the EuropeanUnion, the situation with the postponed production ofthe medium MTA A�400 aircraft and limited deliveriesof light C�27 and C�295 aircraft is no better than in theUnited States. In fact, this is practically a full list of themain produced and developed models of MTA of thecountries of the first group. There is a high probabilityof the situation where the military leadership of mostcountries of the world will have to surrender to aninvoluntary numerical reduction of the MTA fleet.

Countries that have at present small numerical for�mations of MTA and insufficient growth of militaryexpenditures (Bulgaria, Bolivia, Finland, Switzerland)are likely to try to look for a solution in view of involun�tary surrender of their own MTA in such measures asthe joint use of C�17 aircraft and western second�handaircraft. This list of countries should be supplementedby most countries not mentioned in Table 2.

Similar processes are occurring also in civil avia�tion and can be calculated by similar procedures withreplacement of the NMB parameter by the budgets ofoperators.

REFERENCES

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3. D. Danilkovich and V. Shvarev, Analysis of the Stock ofOrders for Aircrafts in 2009–2013, Rynok vooruzhenii8 (10) (2008).

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18. M. Sergeev, Russian Aircraft Industry: Flights inDream and in Reality, Nezavisimaya gazeta, May 29(2008).

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a long-term forecast of market prices for civil and military transport aircraft

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