Western Sanctions Help Resolve Russian-Chinese Differences on Joint Wide-Body Airliner

Source: Carnegie Center Moscow

China entered into a joint project with Russia to build a new long-haul, wide-body jet several years ago not as a “little brother”—having relied on Russian technology for decades—but as an equal and ambitious partner. It seems that Russia has not yet accepted this, and there are other challenges to their cooperation too, but the external threats that Moscow and Beijing face force them to work together.

The history of Moscow and Beijing’s cooperation in the aviation sector goes back more than eighty years and began with the Soviet export of military hardware, including fighter jets, bombers, and transport aircraft. Later on, China started to produce copies of Soviet airplanes.

The collapse of the Soviet Union undercut Moscow’s position, while the economic boom in China strengthened that of Beijing. However, for some time China continued to rely on Russia’s technological base, particularly in the defense sector, and real change did not come until the 2000s. China had continued to buy military aircraft from Russia while developing its own technology influenced not only by the Soviet aviation industry, but also by the industries of other countries.

China also bought Soviet civil aircraft, but mostly as part of deals to buy military planes. The civil aviation industry in the Soviet Union was secondary to military aviation, and demand for Soviet civil aircraft hinged on Moscow’s political influence; once that influence dissipated in the 1990s, Soviet civil aircraft turned out to be inferior to Western analogues in many ways, above all in terms of fuel efficiency. Even Russian airlines started opting for more fuel-efficient foreign aircraft in order to be competitive. Soon the active fleets of Russian and Chinese airlines consisted entirely of imported aircraft.

Nevertheless, Russia was not ready to give up on its civil aviation industry. The government established United Aircraft Corporation (UAC) to amass control over all key domestic aviation enterprises and green-lighted the Sukhoi Superjet 100 regional passenger airplane, which was expected to win over Europe and flood Asia. Out of habit, Moscow expected Beijing to buy whatever it offered.

Beijing, however, had no interest in the Sukhoi Superjet. Instead, it set up its own aerospace conglomerate, the Commercial Aircraft Corporation of China (COMAC), and focused on its own aircraft: first the regional ARJ21 and then the medium-haul C919. China made clear that it also wanted to be an aviation power, and that—like Russia—it would support its aviation industry through strong state participation.

What China couldn’t build without Russia’s help was a wide-body airplane. In turn, China’s large budget, colossal market, and strong desire to compete with Airbus and Boeing made a partnership with Beijing appealing to Moscow.

Negotiations on a joint project lasted almost a decade. Former UAC president Alexei Fedorov explained that the biggest stumbling block was the desire of each side to be the senior partner in the project. The process was accelerated by meetings between Russian President Vladimir Putin and Chinese President Xi Jinping, which were prompted by the introduction of Western sanctions against Russia following the Ukraine crisis. A memorandum of cooperation (2014) and an intergovernmental agreement (2016) were signed during Putin’s visits to China. Moscow and Beijing also agreed that the project would not have a senior partner and that everything would be split equally, including the $20 billion in financing from the Russian and Chinese governments.

In practice, maintaining a balance was harder, since the two sides had different resources and approaches. In 2017, UAC and COMAC set up a 50-50 joint venture, the China-Russia Aircraft International Corporation (CRAIC), to produce, sell, service, and market a new long-range, wide-body, twin-engine jet. The plan was to build the fuselage and stabilizers—as well as to perform the final assembly and conduct the rollout and first flight—in Shanghai.

All presentations of the airplane were also held in China, including of the model and the first full-size mockup at the Zhuhai Airshow, with Russian delegations left to visit as guests. Russia was also willing to compromise on the name: CR929. “C” and “R” stand for “China” and “Russia,” and the number 9 in Chinese culture represents eternity and longevity. Conveniently, CR929 also complements the name of the medium-haul C919.

In 2018, Russia and China announced the key parameters of the CR929: the basic version would have 280 seats and a flight range of 12,000 kilometers, and there would be a stretch version (320 seats, 10,000 kilometers) and a shrink version (230 seats, 14,000 kilometers) as well.

The CR929 was initially expected to make its maiden flight in 2023–2025, with deliveries in 2025–2027. However, Russia postponed the timeline to 2028–2029 “due to complications,” to China’s dismay. Beijing insists that construction of the airplane will begin by the end of 2021. The aviation sector is part of China’s “Made in China 2025” national industrial strategy, and COMAC is likely expected to show some results by that year.

Russia doesn’t need a jumbo jet as much as China does. The government’s needs are covered by Soviet-designed Il-96s, while the domestic airline industry would buy no more than 50–120 jumbo jets. However, Russia wants to take advantage of its capabilities in developing large aircraft to increase its sphere of influence and take some of the market share from Boeing and Airbus.

The key market for the CR929 is the Asia-Pacific region, above all China, which is estimated to need 700–1,200 jumbo jets over the next twenty-five years. Russia’s main motivation in the CR929 project is to gain access to a market that will be ten times as big as its own. “We will have guaranteed demand for many years ahead. Such opportunities are rare for any producers, and we must value them,” UAC president Yury Slyusar stressed in 2017.

In the spring of 2019, however, it was reported that Beijing wanted to sell the airliner in China in its own, leaving Moscow the Russian domestic market and the global market. Vedomosti newspaper quoted sources at UAC complaining that this approach made the project pointless for Russia. Essentially, Moscow would take on the commercial risks of promoting the airplane on the global market while giving up profits from sales on the promising Chinese market. Neither UAC nor Russian officials have formally confirmed that talks on splitting sales markets were taking place.

In November 2019, the Chinese partners made a concession on one key issue: the location of the program’s engineering center—effectively, its brain center. They agreed to set up the center in Moscow, with a branch in Shanghai.

Russia and China still have fundamental disagreements about the project, however. Russian Minister of Industry and Trade Denis Manturov summarized these in the summer of 2020: “The Chinese entered this project with one objective—to obtain technologies and keep their own market for their own airplane. Our objective was not to share technologies, but to get access to the foreign market. Nevertheless, we are looking for a compromise and continuing joint financing of the program.”

Fundamental disagreements do not preclude cooperation, and U.S. and European sanctions against Russia, as well as the U.S. trade war with China, are good reasons for Moscow and Beijing to stick together. Both are being denied access to technologies and components in which they have a similar lack of expertise. Russia and China can build an airplane together, but without avionics and other systems—not to mention engines—it will be just a “hollow shell.”

Russia and China are hurriedly developing their own production—both countries have announced work on powerful engines—but that will take a while. For now, they can buy engines for the CR929 from Rolls-Royce or General Electric, which have not refused to sell them so far.

Talks are also under way with foreign suppliers of components, but creative solutions would be necessary due to sanctions. Potential suppliers could localize production in Russia or China, for example, or set up joint ventures with Russian or Chinese companies.

With the global aviation industry hit hard by the pandemic, there is a chance that foreign producers will indeed find a way to get around sanctions. Now Russia and China must just make sure that they don’t subvert their own cooperation.