Soaring Prices of Russian Aircraft Highlight Challenges in Establishing a Self-Sufficient Aviation Sector

The prices of Russian-manufactured passenger aircraft designed to substitute for Boeing and Airbus models have soared, presenting a significant obstacle to Moscow’s ambitions for a self-sufficient civil aviation industry.

As revealed in a report from a Transportation Ministry meeting accessed by the pro-Kremlin newspaper Izvestia, the costs for locally produced aircraft have surged by 45 to 70% over the last two years, primarily due to increased production expenses and Russia’s persistent reliance on imported components.

The MS-21, which is Russia’s premier medium-haul, narrow-body aircraft intended to compete with the Boeing 737 and Airbus A320, now has a price tag of 7.6 billion rubles ($96 million), a steep rise from the previous range of 4.3 to 4.6 billion rubles ($55-58 million) just a year prior.

The price of the Il-114-300 turboprop, specifically designed for regional air travel, has nearly doubled to 2.6 billion rubles ($33 million).

Additionally, the LMS-901 Baikal’s price jumped from 178 million rubles ($2.3 million) to between 315 and 320 million rubles ($4-4.1 million).

Rostec, the state-owned defense and aviation company, informed Izvestia that initial price projections for homegrown aircraft were overly optimistic and did not accurately reflect the present economic climate. They pointed to escalating material and electronic component costs as primary reasons for the price increases.

A representative from Rostec also mentioned that early production phases tend to be more costly but anticipated that expenses would decrease as production levels rise.

“We are collaborating with relevant agencies and airlines to formulate a strategy aimed at reducing aircraft manufacturing costs,” the representative stated, noting that this initiative is expected to yield results by 2030.

Viktor Anoshkin, a representative from the budget airline Smartavia, told Izvestia that while maintenance constitutes a major cost for airlines, the leasing conditions of aircraft are even more essential in assessing profitability.

Following the assembly noted by Izvestia, the Transportation Ministry directed the State Transport Leasing Company (GTLK) to devise new financial and operational leasing frameworks specifically for Russian-made aircraft.

GTLK indicated that these leases can only be economically sustainable if the complete purchase price is financed by the National Welfare Fund (NWF), Russia’s sovereign wealth fund.

To alleviate pressure on airlines, GTLK suggested lengthening lease agreements to seven or ten years, with the option for an extra year dedicated to remarketing the aircraft. The proposal includes a commitment of NWF resources for 20 years, along with a stipulation for a two-year upfront payment.

Minutes from the Transportation Ministry meeting referenced by Izvestia emphasized that “aircraft prices ought to be comparable to those of foreign counterparts, and the financial model must exhibit similar returns for the NWF.”

These price increases highlight the difficulties Russia encounters as it seeks to revitalize its aviation sector in light of extensive international sanctions imposed after its invasion of Ukraine. Such sanctions cut off access to Western-manufactured aircraft, spare parts, and maintenance services, forcing the country to hastily develop alternatives.

Nevertheless, despite public commitments to diminish reliance on Western technology, reports indicate that Russia has imported over $1 billion in components from Boeing and Airbus since the onset of the conflict, frequently through third-party nations or gray-market suppliers.