Will Lokomotiv Hockey Team Crash Impact Superjet and MS-21 Programs?

Just when everyone thought it was safe for Russia to sell its modern, western equipped and competitive aircraft globally, another Russian aircraft crash has sent shudders through the world market about Russian aircraft safety.  The key question is whether this will be positive or negative for the two new modern and competitive programs – Superjet and the forthcoming MS-21.

As a hockey fan and Bruins season ticket holder, I mourn the passing of many of the Lokomotiv players, especially Brad McCrimmon who played here and was the newly appointed head coach of the team.  An event of this magnitude, with many former NHL stars drawn to play in Russia by strong salaries in the Kontinental Hockey League, has generated tremendous negative publicity for the safety of Russian aviation.

The impact has reached such a crescendo that Russian President Dimitri Medvedev has called for a radical restructuring of the Russian industry, and the replacement of older Russian-built aircraft with new aircraft over the next few years.  By January of next year, many of the older model Russian built aircraft will be removed from service, and smaller carriers with fewer than 20 aircraft will be shut by the end of 2012.  That will likely increase concentration in the Russian market, where 10 carriers already carry 85% of traffic, and Aeroflot, S7 and Transaero account for more than 50%.   It is likely that acquisitions by the “big 3” will increase their share to more than 2/3rds of the market by 2013.

Safety of flight is a major concern in Russia, where a dramatic increase in accidents in 2010 pushed the rate to three times the world average — 7.15 accidents per million flights versus 2.56 globally.   Sadly, this is a result of aging equipment, poor maintenance, poor training and other factors.  Will the government initiatives actually solve the safety issues?  Many are skeptical, but grounding many of the older aircraft should enhance safety, especially if more modern used western build aircraft or the new Russian built aircraft replace them.

Sometimes an event can become a galvanizing force for change in an industry, and we believe this could be the case for Russia.  Demand for new and safer aircraft will grow, and both the Superjet and MS-21 will be state of the art aircraft that should be as safe as any aircraft produced in the west, if well maintained and flown by trained pilots.  This should provide these aircraft, as well as the Antonov An-158, an opportunity to prove themselves in the Russian marketplace.

Will this incident taint the sale of Russian aircraft overseas?  We don’t believe it will be a major factor.  Aviation experts understand that the aircraft that crashed was an older Yakovlev Yak-42 flown by a small operator, and that today’s more modern Russian aircraft are head and shoulders better in capability, economics, maintainability, and safety.  Early speculation has ranged from mechanical problems to substandard fuel, so we don’t yet know the exact cause of the crash – but apparently the engines were still running after the crash in the water.

Bottom Line:  This crash, and resulting government actions, will increase demand for the Superjet and MS-21 and presents a strong opportunity for the Russian industry to manufacture and sell new aircraft to replace the aging fleet that has been problematic.  While Russia’s aviation reputation has been tainted again in the west, we believe the new products, particularly the MS-21, which should be equal to or potentially even more efficient than neo or max, should stand on their merits and be competitive outside of Russia, even though initially a “show me” attitude may apply until the airplanes have successfully entered service and achieved a strong safety record.

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