OREANDA-NEWS. July 26, 2010.

Khrunichev’s Ranking in Russian and International Space Industry
 
Let me first dwell on the international launch services scene since 2005 and Khrunichev’s role. An interesting trend seems to be evolving. While in the 2005-2007 period we performed seven launches, in 2008 we surged forward and, with fourteen launches in that year, repeated our all-time record dating to 2000, reported the press-centre of Khrunichev.
 
Significantly, in that same year 2008 we were responsible for lofting every third kilogram of the world’s combined payload, i.e. our share exceeded thirty percent. In 2009 we set a record in the number of launches. We launched fifteen boosters of five different types. This is a unique result to be accomplished by one company, the Khrunichev Space Center.
 
If we look at the five-year manifest of the industry worldwide, we will see Khrunichev’s share equaling 26% of all space traffic. In other words, Khrunichev’s launch vehicles are responsible for orbiting a full one-quarter of the existing volume.
 
Following our last failure, we launched as many as twenty-three Protons in 22 months.  This is also a record of sorts: we had never boasted such frequency.

Also, in the first seven months of the current year, we have had seven Proton launches, all of them successful.
 
I would now like to tell you about our program for the next six years including our commitments in support of the Federal Space Program, MoD and commercial projects. The plan is to ensure 19-20 launches annually in the 2010-2015 timeframe. This will require tremendous efforts and preparation involving the production segment and overall process organization.
 
Vertical Integration
 
Let us now address the issue which is of interest for everyone, and that is vertical integration. A few words about vertically integrated companies and their purposes based on the example of Khrunichev Space Center.
 
Here you can see how Khrunichev has evolved in the process of vertical integration.
 
The Polyot Production Amalgamation is a rocket manufacturer with a record and traditions going back many years, and highly-skilled personnel. And almost no government orders. Had it not been for its affiliation with us, Polyot would undoubtedly go bankrupt. Following amalgamation, Polyot came in very handy: it was to Polyot that a large volume of business was transferred from the Khrunichev Rocket Plant in Moscow. The transition was relatively smooth, Polyot has skilled personnel, and we have gained access to additional production facilities and were able to increase Proton production figures.
 
The facility in Omsk has become our second rocket-manufacturing plant and very instrumental for the Khrunichev Center.
 
Now to the city of Perm where Proton-PM, the engine manufacturer, is located. For four years we have been wrestling with GUTA financial group for the controlling interest in Proton-PM. The facility is of particular significance for us as manufacturer of Proton Stage I engines. There are plans to transfer certain production volumes of RD-191 to Proton-PM.
 
 With the ownership of 98% of the stock, the Proton-PM facility is almost wholly-owned by Khrunichev and, in fairness, Proton-PM reciprocates by playing its part well from the perspective of production capacity.
 
Voronezh Mechanical Plant (VMZ) is an emblem of the industry. VMZ was also in a very precarious financial situation. VMZ manufactures engines for Proton Stages II and III, Soyuz Stage III and Zenit upper stage.
 
KBKhM is the manufacturer of propulsion systems for Breeze upper stage. Their life was not easy for reasons other than economic: they had production output issues. We have appointed our own seasoned managers there, and with Khrunichev’s funding they have managed to accomplish a 2.5-fold growth of the output in 30 months.
 
KBKhA is located within the VMZ perimeter and for many years the two have worked together on production and design issues.
 
After these entities have been fully affiliated, we completed Phase I of building our vertically-integrated company. Some of the integration results have brought about the following outcomes.
While in the past Khrunichev’s in-house contribution to the fabrication of Proton and Breeze amounted to 30%, now that the production of propulsion systems has been affiliated, we are responsible for over 65% of the final product’s total value. By so doing, as far as the most complicated elements are concerned, we have achieved independence from management decisions motivated by short-term considerations of other companies. This is very important. This has enabled us to increase output from six to eleven launch vehicles last year and to 12-13 next year.
 
This is clearly an example of an efficient vertically-integrated company. Being the vital links in the production chain, all principal suppliers have become inseparable from the production cycle which is controlled by a single management.
 
I now wish to announce what Khrunichev has had to pay for the integration effort, inclusive of credit exposure, unpaid taxes, etc. The payments Khrunichev had made by mid-2009 amounted to RUR10.5bn. The monies were invested to ensure uninterrupted functioning of the new Khrunichev member-entities and unhindered production of the Proton M launch vehicle.
What are the results of such investment?It is clearly demonstrated that the newly-joined entities have seriously increased their output since 2007.
 
Output
 
Our output has seen a 2.6-fold increase vs. 2005 while sales have grown more than three-fold.
While in 2005 we manufactured 11 rocket-and-space technology articles of various types (launch vehicle, upper stage boosters, spacecraft), the figure for 2009 is 25. The plan for 2010 is 30, i.e. we are planning to further expand production.
 
Commercial Launch Business
 
We are working with a total of 45 companies in 22 countries.
 
A few words seem in order about revenues from commercial launches in 2003-2009. Let us take 2005. We earned USD198M. In 2009 the take was USD584M. It is the proceeds from our commercial business that have enabled us to invest in the newly-joined entities. Without such increased cashflow the vertically-integrated company will not be around.
 
Since 1994 Proton has earned USD4.3bn for the country. For the country, not only for Khrunichev as the product is built by more than one company.
 
In 2011, based on the existing contracts, we will reach the USD6bn mark. If we add other international program, we will have crossed the USD6bn amount, and we are talking the state-of-the-art high-tech exports.
 
Angara
 
Angara has been a talking point for some time. Some have referred to it as one of those major projects of the century that have been suspended. Others say that seventeen years after the start of the project the rocket is still not ready for testing. All of which is true on the face of it but is also an exaggeration. Indeed, the initial documents were signed in 1993, a government decree followed in 1995. In 2005 we were supposed to launch Angara from Plesetsk. Let me share a small secret with you. By the time we were scheduled to be completing tests, we had received all of …17 % of the total amount of funding.
 
When the funding finally started in earnest from the government and MoD, our customer, design and development activities on the Angara project began to acquire some momentum. In the past five years, i.e. by the end of 2009, we were in the 90, 95-97% completion rate over all major program indicators. Subject to the availability of funding and appropriate design and development capacity of prime contractor, a complicated space rocket may be developed within a fairly short time. In my view, the Angara rocket and space complex is arguably Russia’s biggest success in the past 20-plus years after the days of the Energia launch vehicle and Buran shuttle.
 
We have completed 97% of standalone tests, end-to-end tests of assemblies and compartments of the launch vehicle are planned to be completed by the first quarter of 2011, and the understanding is that the job will be done as currently scheduled.
 
Now regarding RD-191 main engine. Propulsion is the most difficult part of creating a rocket and space complex. And the lengthiest. We are now in the area of nearly 25 thousand seconds, we are into inter-agency testing, and completion rate may be assessed at 99%.
 
As for RD-0124A main engine which is used on both Soyuz-2 (RD-0124) and Angara, we have accomplished about 35 thousand seconds. RD-0124 has been used on Soyuz-2 on three occasions, i.e. flight-tested. The engine for our purposes is estimated to be 94 % ready.
 
The guidance, navigation and control system is 93% ready.
 
However, a real challenge is the manufacturing and installation of ground support equipment. 

What can I say? Unfortunately, when we were signing the contract, we had MoD deflator-indexes that differed from those of the Ministry of Economic Development and Trade while that Ministry’s deflator-indexes were unrelated to real life. As the result, we had a shortage of funds for the developmental phase. The net result of the shortage is our inability to complete the ordering of some equipment required in Plesetsk.
 
I am getting questions about flight testing. The answer is flight tests will start 30 months from T-0, the latter standing for the time of receiving additional funds.
At this time there is a government executive order regarding the funding. Let us see if the amendment to the budget bill passes the State Duma. If it does, we hope to receive the money this year. Which is to say, flight tests will then commence early in 2013.
 
Actually, it may be said that we have started flight-testing of the Angara complex with its first and most complicated stage which has flown on board the S.Korean KSLV-1. And not a bad start it was at all. Right on the first try.
 
Retooling and Modernization
 
Retooling is truly a matter of life and death for us. Starting in 2006, in spite of all integration issues we began investing our own funds in new machinery and processing centers. Our own spending in the 2006-2009 period amounted to RUR 2.6bn.
 
For two years we kept persuading the Government that we should not be manufacturing Angara using obsolete equipment, and as much as RUR9.4bn was set aside under the defense industry complex line item.  Of that amount, we received RUR 3.2bn last year. As the result, having spent almost RUR6bn of our own and government funds we managed to procure 4 147 units of equipment which we have distributed sufficiently evenly among all members of Khrunichev family.