L ike thousands of other navalshipbuilders worldwide, Ifound myself mourning in May

of 1988 when the world learned ofthe death of Admiral SergeiGeorgievich Gorshkov – Admiral ofthe Fleet of the Soviet Union. He ledthe Soviet Navy’s shift from acoastal defense force to a Global SeaPower during his nearly 30 years asCommander in Chief of the Navy ofthe USSR. His leadership, influence,and care of Russian shipbuildersmade their counterparts worldwideenvious.

Today, I find myself reflectingback on his accomplishments asRussia once again looks to re-buildand restore its place as a globalseapower. This is seen in Moscow’swork to modernize its naval forcesand all the other related elementsthat contribute to a nation’s seapow-er – a robust commercial shipbuild-ing industry, maritime transport,energy and fisheries.

Admiral Gorshkov was a strongadvocate for this comprehensiveview of seapower. His legacy can beseen today – not only in Russia’scontemporary naval fleet – but alsoin the wide variety of Russian-designed and built naval ships stillactive in navies across the globe, notto mention the hundreds of Russianseamen and Russian built commer-cial ships that sail the seas.

Today’s political and naval leadersonce again have a chance to set Russia’scourse on the world’s oceans. As a longtime professional observer of naval ship-building trends around the world, Ifirmly believe that Russia would do wellto look to naval exports for significantpolitical and economic growth opportu-nities as it rebuilds its own fleet. Putsimply, naval exports should be a keyelement of Russia’s future seapower.

LOOKING BACK AND LOOKING AHEADThe last 20 years have been chal-

lenging for Russia. The country hasworked to overcome the economic

collapse of the USSR and reestablishits political, economic and socialstructures. Moscow has enjoyed sig-nificant success in revitalizing theeconomy and managing these prob-lems. A comprehensive militaryreform plan seeks to modernize itsarmed forces. With domestic reformsachieving success, Russia once againhas the time to look seaward and setabout revitalizing the Navy andrelated shipbuilding industries.

With the economic problemsfaced by the world today, some ele-ments of Russia’s ongoing militaryreform will likely slow. But thecourse ahead still looks promisingfor the Russian Navy. Militaryreform and defense investmentsmay provide a significant economicstimulus to the domestic economywhen one considers the millions ofcitizens involved in military-relatedindustry. While progress may beslower than hoped, Russia is mov-ing forward with significant Navynew construction plans including:

• A new nuclear poweredAircraft Carrier (whose design hasalready begun).

• Renewal of the submarine fleetwith several ongoing programs:

– The Borey class nuclear-powered ballistic missile submarines(SSBNs)

– The Yasen class nuclear-powered attack submarines (SSN)

– The St Petersburg class conven-tionally-powered attack submarines(SS) and

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Guy STITT

EXPORT OPPORTUNITIES FOR THE RUSSIAN NAVAL INDUSTRY

Guy Stitt is the founder and President of AMI International(http://www.amiinter.com), an open source naval intelligence and con-sulting firm. Mr. Stitt’s 34 year background in the naval marketincludes five years as a Torpedoman aboard a diesel electric subma-rine, four years in various production, engineering, contract, and man-agement positions with a large shipyard and 25 years as an advisor tonavies, governments and industry in naval industrial and programissues.

Mr. Stitt is recognized as a naval shipbuilding expert and hasserved as an advisor to nine Governments in their naval shipbuildingindustrial policies, and seven navies in their acquisition processes inthe last eight years. Further, Mr. Stitt has personally consulted for 41

shipyards and 62 System and Equipment manufacturers worldwide inguiding their participation in the international naval marketplace overthe last two decades. Mr. Stitt developed and published the World’sfirst assessment of worldwide naval construction projects both currentand projected – Worldwide Naval Projections Report (WNPR). Thispublication has been continuously maintained and updated since 1992.

Mr. Stitt serves as Ambassador of the Puget Sound Naval BasesAssociation (PSNBA) that represents nearly 15,000 civil servants infive major Government owned facilities in the Western Puget Sound.Mr. Stitt is a life member of the U.S. Navy League, U.S. NavalSubmarine League, U.S. Submarine Veterans, U.S. Naval Institute, andAmerican Society of Naval Engineers.

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• Modernization of the surfacecombatant force with theSteregushchiy and AdmiralGorshkov class frigate programs.

• And othersThis large-scale naval expansion

presents great opportunities forRussia to leverage investments indomestic shipbuilding and relatedindustries for additional gains onmany different levels;

• Foreign Policy• International Trade• Domestic Economic stimulus• Modernization of the country’s

scientific and technical base, andprogress in modern manufacturingtechniques and efficiencies.

THE CASE FOR NAVAL EXPORTSRussia is certainly a leader in the

naval export market and shouldcontinue. Some recent success inexports includes:

• India— Talwar FFG – In June of 2008,

the sixth (third unit of Batch II)Talwar class frigate for the IndianNavy commenced construction atRussia’s Yantar Shipyard.

— Gorshkov Refit – Althoughthe program has had some problems

due to its complexity, it appears adelivery is expected in the 2012-2013timeframe.

• China— Sovremenny DDG – Four

Soveremenny destroyers were builtfor the People’s Liberation Army-Navy (PLAN) and delivered in 2001and 2006. Two additional units areplanned for the next decade.

— Kilo (Project 636) Submarines– In May 2002, Rosoboronexportconcluded a US$1.5B contract withthe PLAN for eight Kilo (Project 636)submarines. The first three weredelivered in 2005 followed by fourin Feb 2006. Two units of Batch IIwere delivered in 2006, with thefinal two in 2007.

• Algeria:— Kilo (Project 636) Submarines

– In May 2006, press reporting indi-cated that Algeria had agreed to pro-cure two Kilo class submarines fromRussia for an estimated US$400M.

• Vietnam:— Gepard (Project ) Frigates – In

Jul 2007, the first of four Gepardclass frigates for the VietnamesePeople’s Navy was laid down atZelenodolsk Shipyard in Russia.

— Tarantul IV FAC –

Construction of Tarantul class boatsat Vympel Joint Stock ShipbuildingCompany is underway (two boatshave already been delivered to thecustomer).

• Libya:— Molniya FAC – Up to three

Molniya class fast attack craft to beconstructed at Vympel shipbuildingyard in Russia.

As Russia finalizes its futurenaval force structure plans, it shouldconsider funding the developmentof «exportable» variants of its owndomestic naval ship designs or«export specific» designs. Not onlydo such naval exports serve as apolitical and foreign policy tool,they also contribute significant eco-nomic benefit to Russia’s navalindustry – both shipyards and sys-tem suppliers. «Export specific»designs could spur export sales andrevenues to bolster some Russianshipyards and many of Russia’s sec-ond tier system and equipment sup-pliers.

AMI International has spent thelast quarter century following thenaval acquisition plans of theworld’s top 72 navies. The chartbelow shows what kinds of ships

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will be built in the next 20 years.This represents an estimated $641Bin future investments in naval shipsand related systems across theworld.

WORLD MARKET OPPORTUNITIESA look at the chart shows that

there are growing opportunities forexport sales of smaller surface com-batants (OPVs, Corvettes, LightFrigates). Russia also has the oppor-tunity to meet the needs of somecountries for smaller aircraft-capableships – including small aircraft carri-ers. And Russia will continue toenjoy success in future conventionalsubmarine exports with their mar-ket-leading KILO and AMUR vari-ant designs.

SOME LESSONS FROM THE INTERNATIONAL MARKET

As Russia plans for the recapital-ization of its domestic naval fleetand the expansion of related indus-tries, there are a few conclusions wehave drawn from other countries’sometimes painful experiences.These «lessons learned» could helpRussia avoid some costly mistakesas it modernizes its naval shipbuild-ing:

1. Don’t combine commercial andnaval shipbuilding in the same shipyard.

In AMI International’s work withover 40 different shipbuildersworldwide, we have observed thatthe most successful companies clear-ly separate the workforces responsi-ble for commercial shipbuilding andnaval shipbuilding.

Most commercial ships differgreatly from naval vessels. The levelof quality required in commercialvessels is generally less than navalvessels and where there are highquality requirements, they are in

areas generally unrelated to navalship requirements.

Commercial shipbuilders seeklow cost and quick delivery whenthey look for new constructionships. The level of complexity forsystems integrated in a commercialship is generally far lower than on anaval warship.

In contrast to commercial cus-tomers, naval buyers seek surviv-ability, successful integration ofcomplex systems, and a high level ofoperational availability over theextended (30-35 year) life of theship.

Mixing these two very differentobjectives and value chains in a sin-gle workforce is extremely difficult.Companies that have succeeded indoing so have typically focused on«niche» market segments – luxuryyachts built by high speed patrolvessel builders, and large luxurycruise ships built by large complexcombatant or amphibious ship-builders.

2. Focus on new systems development.

Take advantage of the invest-ment in naval shipbuilding to seeknew effective naval ship designs,advanced sensors (advanced phasedarray radars), and new propulsionsolutions (diesel engines, gear boxes,fuel cells).

Comparing Russia’s current stan-dard with world leaders in thesemarket segments may open oppor-tunities for Russian industry tolicense production or seek to acquirecompanies that have advantages inthese segments.

3. Enhance the training and supportfor systems sold worldwide.

Reviewing the results of interna-tional naval ship competitions sug-gests that Russia needs to develop a

cost-effective logistics support solu-tion. Such a solution would addressexport customers’ needs for «life-cycle» support of Russian-sourcedships and equipment over an extend-ed period. This might include re-working contracts with end users toinclude shore-based spares and com-plete replacements for critical sys-tems. Training of export customersin Russian based logistics supportcan pay off handsomely here.

Rosoboronexport seems to pro-vide an excellent umbrella organiza-tion for managing the much neededtraining and logistics support forexported systems.

4. Find efficiencies in manufactur-ing, material selection for ship construc-tion, and in systems integration.

Most industrialized nationsworldwide are struggling with thecost increases related to naval ship-building. The complexity of the sen-sors, weapons, and others systemswe put on our naval warships drivethe cost of warship higher at a rapidpace.

Efficiencies can be gained by:• Balanced fleet make-up – not

every surface ship needs to be acomplex combatant.

• Relaxing or finding alterna-tives for specialized materials thatare costly to produce. For example,the cost of specialized aluminumhas risen significantly. Perhaps com-posites might make a better materialchoice for lower cost.

• The integration of the multi-tude of complex systems on shipsseems to suggest some new ways oforganizing this effort of equipment,sub-system, system, and intra-system integration and testing isrequired.

• Looking at alternative fuelsources will likely provide signifi-cant savings for the Navy. Given thelife cycle of the naval ships beingbuild today is 30 years, consideringnon-petroleum based propulsionsystems demands attention.

Of course there are many otherareas where efficiencies can befound.

Conclusion. The world sits watch-ing Russia as its Navy moves into anew generation. I am excited for ourshipbuilding brethren in Russia andexpect the next 15 years will proveanother time of optimism and navalgrowth for the country. AdmiralGorshkov would be excited andproud.

> Talwar class frigate

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