Sergei Chemesov, CEO, Rostec, on Saturday News TV Show speaks about what products the Russian industry has launched for the domestic market, whether it makes sense to manufacture everything domestically, and what has to be produced locally.

– Mr. Chemesov, it is true that this year the number of helicopters built is equal to the output back in Soviet times?

- Actually, it is. Today the Mi-8 and the Mi-171, its military version, are the most popular, most common types. They are in global service: from Latin America to Africa.

– What is the annual production of these aircraft?

- Over 300.

– The helicopter engines were manufactured in Zaporozhye, Ukraine, and became unavailable after the events there...

- Unfortunately, this is true. But every cloud has a silver lining. We have already developed the VK2500, a domestic engine. This year about 30 units were manufactured, although we needed 300. I think next year we will build about 200.

We see KAMAZ trucks next to the conventional military products like Iskander or Tochka U2 missiles. Rostec owns nearly a half of KAMAZ shares.

- Trucks is the first product to decline in every recession, and in any country…

- Regretfully, this is true, but the defense procurement program certainly helps. The defense industry is right here to step into the breach.

– Do you make these warheads as well?

- Yes. Rostec also an AVTOVAZ minority shareholder.

– And what about AVTOVAZ?

– There will be no job cuts as such. There staff reduction will be natural, since the employees retire and quit anyway. We will offer early retirement options so those in their preretirement age can retire earlier.

– But the company will not cease to exist?

– We will preserve it.

– Recently the Saturday News TV show visited Iran. We accompanied Denis Manturov, Minister of Trade and Industry. He pointed out that automotive is among the worst-hit industries with a 20% decline.

- Unfortunately, this is true.

– Pharmaceutics and defense are the most promising industries. You said that the defense industry is doing good, and from what we see it looks just excellent!

– It is good. Let us speak cautiously.

– We all are watching the events in Syria. What are the origins of the Kalibr cruise missile that have astonished both TV viewers, and Western military experts?

– It was developed in the USSR, but the missile was heavily upgraded subsequently, and shows top performance now. We did not quite advertise the missile before.

– The experts also say that the T-90 tanks already deployed in Syria survive hits by US anti-tank missiles, not to mention the advanced Armata tank.

– The reactive armor makes it extremely difficult to hit, since it is efficient enough. But without the reactive armor, a tank can be hit.

– To answer the next question, you may need to expose some classified information. The Russian mass media have reported a version proposed by US defense experts. It says that Turkey shot down the Su-24 over Syria because the Americans very much wanted to learn more about the Russian wonderful airborne equipment capable of suppressing their electronic systems.

- The Su-24 did not carry this kind of equipment. Actually, we have such a system. It is called President C. It has already been made public. We export it. The system interferes with a warhead’s electronics and diverts it, protecting the target.

– Was it the system that jammed the US destroyer that cruised over the Black Sea after the events in Crimea?

– No, it was something different, it was an electronic warfare system. Our holding is the only manufacturer of this system.

– Recently you approved a new Rostec Development Strategy.

- Yes. It extends till 2025.

– Is the strategy aligned with the Army rearmament? What are the future milestones?

– We have gone beyond that a little. The rearmament program extends to 2020, while our strategy covers the period up to 2025 to see what’s in store for us. We can hardly expect that large orders in the future. By 2020 the Army rearmament program will be completed. So we should already think what other products the companies will manufacture. We have ordered almost every holding to increase the non-defense products share to 50% by 2020.

– Is it happening for the first time ever? The defense and non-defense industries in Russia have always been separated, right?

– Absolutely right. As the USSR dissolved, the defense companies were not ready to make any non-defense products. There was no technology transfer from the defense to the non-defense industry, either. For this reason the high tech defense companies manufactured frying pans, pots, and the like. We should not arrive at this again. Today we are already working on the future manufacturing of high tech non-defense products.

– Could you give any examples?

– We heavily develop the medical equipment production. We make infant incubators for premature newborns to be used in perinatal medical centers. By the way, their quality matches that of the German incubators: the Ministry for Public Health used to purchase mostly German equipment, and by now they have switched to our products. Our incubators are also less expensive compared to the German ones.

Other non-defense highlights are new materials, biotechnology, and pharmaceutics, for sure. Microgen, an uncompleted production facility in Kirov, has been transferred to Rostec. The new Fort end-to-end production facility has been constructed near Ryazan.

There are accusations that Rostec is trying to capture a 100% market share, and is grabbing the entire domestic industry. Let me remind that the company’s full name contains the word “assistance”. We develop the industries we have been granted. We have not acquired any new assets. We have already had pharmaceutics and biotechnology companies. On contrary, we are pushing the manufacturers to switch to end-to-end production. They used to have the simplest process: medical substance procurement, delivery, dispensing, packaging.

The drug is put in a box, and that’s all. The margin was very high. Now we are making them to implement an end-to-end process.

– The sanctions imposed in 2014 were expanded. To what extend do the US and Europe hamper your operations?

– We do not face any substantial obstacles. We had some issues with component deliveries from Europe, Ukraine. By today we locally manufacture most of the products we used to purchase in Ukraine, or Europe. And we have never bought anything from the US, anyway. Now some products come from South East Asia, China. Their quality is as high as that of the European brands. China has learned how to make high quality products. Most part we will manufacture locally, as we already do. I hope the imports phasing out initiative will be completed by the end, 2017.

– Are there any valuable R&Ds made back in Soviet times?

– Yes.

We should recall, and relaunch these old projects. Where do you hire people? They say the defense industry will die out since the average worker is 60-70 years old. Suddenly, we see many young workers. Where do they come from?

– Today the defense companies offer competitive wages, so they are attractive for young people. The enrollment competition to study at our departments at the Moscow State Institute of International Relations, the Plekhanov Academy, these majors are popular.

– So the young have changed their minds?

- Yes. We cover the Masters program tuition, on the condition that every MSc graduate works for Rostec for five years at least.

– You said the magic words: imports phasing out. Do we have to make this an absolute requirement? Recently you demonstrated an e-textbook to the President.

- Yes.

– Is it kind of a locally made iPhone, or iPad?

– It is YotaPhone and YotaPad.

– Why should we manufacture it locally? Wouldn't it be easier to import it?

– Naturally, it is impossible to manufacture everything locally. For example, China delivers millions of computer chips.

– Is it easier to buy the chips from a country that makes hundreds of millions of them?

– Yes, it is easier than establishing a local production facility to make tens of millions. The costs would be higher. But as to the development and manufacturing of final products... The software is domestic, the design is domestic. It is good for us. It this way we develop the domestic electronics industry.

- Does it have to do more with manufacturing capacity utilization, or national security?

- Both. There are, for example, communication systems for the Ministry of Defense. Obviously, it is better to manufacture such systems locally.

– Have you products contributed to Russia’s turning into an equal partner in international relations lately?

- I think so.

Source: Vesti.Ru