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Source: Reuters

Russia arms exports thrive, output barely keeps up

Published: 28 Feb 2010 17:48:34 PST

* Russia boosts arms sales, industry struggles to keep pace * Despite hurdles, Russia is solid second in arms technology

MOSCOW, Feb 26 - Russia's arms exports hit a record high in 2009, but analysts said on Friday that the defence industry may have reached the limits of its export revenue generating capacity.

Last month's test flight of Russia's first fifth-generation jet fighter suggests its defence industry is emerging from a period of post-Soviet neglect, while Moscow's portfolio of arms contracts can keep export revenue steady for five years.

Russian arms exports edged up by $150 million to a post-Soviet record of $8.5 billion last year, the Moscow-based Centre for Analysis of Strategies and Technologies (CAST) said in a report made available to Reuters.

Fluctuations in the dollar exchange rate resulted in exports showing "real-term growth of a modest 2.1 percent, meaning sales have essentially been flat over the past two years", it said.

"That serves as further indication that Russia's defence industry has reached the limits of its export revenue generating capacity," CAST said.

"Further growth will require a serious upgrade of production facilities, as well as investment in skills and training."

Russia's sole authorised arms exporter, Rosoboronexport, accounted for $7.436 billion of Russia's 2009 defence exports, up from $6.725 billion in 2008, CAST said.

"Russia's portfolio of defence contracts had reached $40 billion by the end of 2009 -- an increase of $7 billion on the previous year," CAST said. "Rosoboronexport ... secured an unprecedented $15 billion of new sales last year."

"The existing portfolio of defence contracts should keep Russian arms exports revenue steady for another five years."

FIGHTERS, HELICOPTERS, TANKS

Projections for 2010 include the sale of some 40 fighters of the Su-27-30 Flanker family, CAST said. Final deliveries will probably be made on the Indian deal for 16 carrier-based MiG-29K fighters. Russia will also start delivering the contracted 80 Mi-17V-5 helicopters to India.

Venezuela, Washington's sharp-tongued foe and Russia's new-found Latin American friend, received a $2.2 billion loan from Moscow in 2009 to be spent on weapons. The only known contract is for 92 upgraded T-72M1M main battle tanks.

Unofficial reports say the deal with Venezuela is worth up to $4 billion and may include S-300V air defence systems, Smerch multiple-launch rockets and howitzers.

Soviet-era political ally Vietnam became Russia's largest weapons buyer in terms of new contracts signed in 2009, making it one of Moscow's top six defence customers along with India, China, Algeria, Venezuela and Syria.

Vietnam has placed a large order, estimated at $4 billion, for six Project 636M conventional submarines and onshore infrastructure to be built by Russian firms. It has also signed a deal for eight Su-MK2 Flanker fighters.

Last month Russia successfully tested its fifth-generation fighter, breaking the United States' monopoly on the development and output of this type of aircraft.

The first MiG-29 and Su-27 prototypes of the previous fourth generation took to the air in 1977. CAST said several countries, including Libya and Vietnam, had expressed interest in the fifth-generation fighter, but serious financial, technical and even political hurdles remain before Russia starts producing it.

The aircraft's maiden flight showed "Russia is still a solid second in terms of defence technology," CAST said. The new plane, codenamed T-50, is to be jointly produced with India, Russia's traditional partner since Soviet days.

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