LOCATION:
Address: 5 ploshchad Lenina, Arsenyev-5, Primorskiy Kray, 692330 Russia
Telephone: (42361) 21-856, 252-232
Fax: (42361) 25-093
["OAO Arsenyevskaya aviatsionnaya kompaniya 'Progress' im. N.I. Sazykina," AviaPort.ru Web Site, http://www.aviatport.ru/analytics/base/717.html.] {Entered 12/11/2002 MJ}
HOMEPAGE: http://www.aacprogress.da.ru
ADMINISTRATION:
General Director: Viktor Pechenkin
["Aviastroitelnaya kompaniya 'Progress' sozdast partiyu protivokorabelnykh raket 'Moskit' dlya VMF Kitaya," Russkoye byuro novostey, 14 April 1998; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}
BACKGROUND:
AAK Progress was created in 1936 as an aircraft repair plant. Under the long tenure of Director Nikolay Sazykin, the plant became an important component of the Soviet aviation industry.[1] During the Soviet era, the plant was famous, among other things, for the Mi-24 [NATO name 'Hind'] attack helicopter, which was produced in Arsenyev at a rate of over 100 a year. It also produced the 3M-80 Moskit [NATO designation SS-N-22 'Sunburn'] anti-ship cruise missile designed by MKB Raduga.[2] Progress is one of the most important defense enterprises in the Primorskiy kray[3] and is on the Russian government's list of strategic enterprises, which ensures that the government will keep a controlling share of enterprise stock. It was briefly excluded from the list under the government of Prime Minister Kiriyenko, but returned to it in late 1998.[4] Like most other major defense enterprises, Progress has a vast network of some 300 subcontractors, including 30 principal ones.[5] In the late 1990s Progress sought to reduce its dependence on subcontractors in order to reduce production costs, and has attempted to establish firmer ties with other enterprises in Primorskiy kray. These include the Radiopribor Plant, which supplies electronic components for the Moskit missile.[6]

After the collapse of the Soviet Union, Progress faced an abrupt drop in state defense orders. As a result, production at the plant decreased by nearly 95% from 1991 to 1997. By October 1997, state defense order debts to Progress had reached 18 billion rubles (about $3 million as of October 1997).[7] The sum of unpaid salaries had reached 57 billion rubles (about $10 million) in late 1997, while the number of workers had dropped from 14,000 to just 5,200.[8] In March 1998 problems at Progress became so acute that its workers, who by then had not received any pay in two years, were forced to rely on food assistance collected by other Primorskiy kray enterprises.[9] The situation improved with the receipt of two consecutive orders to supply 3M-80 Moskit anti-ship cruise missiles to China. The income from these sales helped ameliorate some, though by no means all, of the financial problems. The work on fulfilling Chinese missile contracts considerably boosted Progress' standing among Russian defense plants. In 1999, AAK Progress was the 20th largest exporter among Russian defense enterprises, with sales reaching $9.3 million and profit $1.3 million. In 2000, its position rose to the eighth largest exporter, with $140.8 million in sales. It was also the fifth most productive defense enterprise in Russia in terms of labor, earning $32,800 per worker in 1999, and the fifth most profitable defense enterprise in 2000, with a profit of $20.8 million.[10]

As noted earlier, even the lucrative Chinese contracts did not result in an immediate improvement in the plant's financial situation. As of January 2002, the average monthly salary at AAK Progress was still only 1,500 rubles (nearly $50 as of January 2002).[11] By October 2002, however, it had risen to 3,000 rubles (over $90 as of October 2002) thanks to funds from a second Chinese missile export contract, and it was expected to increase further, to 3,500 rubles (about $108 as of October 2002). The plant was also able to begin to pay overdue salaries to its workers.[12] Plant management has also complained about high transport tariffs, which hamper relationships with subcontractors in the European part of Russia. Electricity and transportation tariffs amount to as much as 37% of production costs.[8] The plant's fortunes continue to be dependent on energy tariffs. The 2002 missile contract to China, for example, could actually cost Progress up to 7.1 million rubles ($220,000 as of October 2002) if electricity rates increase from 1.3 rubles per kW/h to 2.06 rubles per kW/h, since the contract does not take such changes into consideration.[13]

In spite of the sudden improvement in its financial situation caused by export contracts, the plant's future remains uncertain. Export contracts are virtually the sole source of support for the enterprise, but Progress may face difficulties maintaining its missile market in the future. Progress's Moskit missile no longer represents the state of the art of Russian technology and, once it has the necessary funding, the Russian Navy will undoubtedly opt for more advanced successors of the Moskit, such as the Kalibr/Club and Oniks/Yakhont. Likewise, on the export market the Moskit may find itself having to compete with the export versions of these more advanced weapons.
Sources:
[1] Viktor Debelov, "Blesk i nishcheta aviaraketnoy kompanii," Vladivostok, 20 August 1996; in Integrum Techno, http://www.integrum.ru/.
[2] Viktor Debelov, "Rabota - schastye, gore - kogda eye net," Vladivostok, 5 February 1998; in Integrum Techno, http://www.integrum.ru/.
[3] Tatyana Kurochkina, "Generalnyy direktor aviatsionnoy kompanii 'Progress' (Primorskiy kray) Viktor Pechenkin rasskazal o polozhenii del na predpriyatii," Zolotoy rog, 6 August 2002; in Vsya Rossiya, 7 August 2002; in Integrum Techno, http://www.integrum.ru/.
[4] Vladivostok, 3 November 1998, p. 2; in "'Progress' vozvrashchayetsya v chislo strategicheskikh predpriyatiy Rossii," VPS VPK i Biznes/Konversiya, 27 November 1998; in Integrum Techno, http://www.integrum.ru/.
[5] "Arsenyevskiy zavod 'Progress' vypolnyayet zakaz na postavku sverkhzvukovykh protivokorabelnykh raket 'Moskit' Kitayu," Russkoye Byuro Novostey, 29 July 1998; in Integrum Techno, http://www.integrum.ru/.
[6] "Primorskiy Kray. Vitse-gubernator Vladimir Vedernikov provel soveshchaniye po gotovnosti OAO 'Radiopribor' k vypolneniyu kontrakta po linii voyenno-tekhnicheskogo sotrudnichestva," Regions.ru Web Site, 4 December 2002; in Integrum Techno, http://www.integrum.ru/.
[7] Vladimir Kucherenko, "V nashenskom kraye nashenskiy bedlam," Vladivostok, 14 October 1997; in Integrum Techno, http://www.integrum.ru/.
[8] "Zalozhniki iz Arsenyeva," Rossiyskaya pravda, 3 September 1997; in Integrum Techno, http://www.integrum.ru/.
[9] "Primorskiye predpriyatiya napravili prodovolstvennuyu pomoshch rabochim aviastroitelnoy kompanii 'Progress'," Russkoye byuro novostey, 26 March 1998; in Integrum Techno, http://www.integrum.ru/.
[10] "Samyye uspeshnyye oboronshchiki," Agentstvo federalnykh rassledovaniy," 15 March 2002; in Integrum Techno, http://www.integrum.ru/.
[11] "Kontrakt na postavku Kitayu dvukh esmintsev pozvolit zagruzit rabotoy bolshuyu chast kollektiva arsenyevskogo zavoda 'Progress'," Vladivostok, 15 January 2002; in VPS VPK i Biznes/Konversiya, 24 January 2002; in Integrum Techno, http://www.integrum.ru/.
[12] "Na aviatsionnoy kompanii 'Progress' nachalos pogasheniye zadolzhennosti po zarplate," Vostok-Mediya, 11 October 2002; in Integrum Techno, http://www.integrum.ru/.
[13] Igor Nikitin, "Predpriyatiya primorskoy 'oboronki' ne mogut vyyti iz krizisa," Zolotoy rog, 13 August 2002; in Vsya Rossiya, 14 August 2002; in Integrum Techno, http://www.integrum.ru/. {Entered 12/11/2002 MJ}
ACTIVITIES:
In addition to Moskit missiles, Progress products include An-74 [NATO name 'Coaler'] light transport aircraft, Yak-55M trainer aircraft, Mi-34 [NATO name 'Hermit'] light helicopters, and Ka-50 'Black Shark' [NATO name 'Hokum A'] and Ka-52 'Alligator' [NATO name 'Hokum B'] attack helicopters.[1] The plant has also been engaged in overhauling Mi-24 [NATO name 'Hind'] attack helicopters in Russian service. Of the products listed above, only the Mi-34 helicopter is currently in production, although at a low rate. There have been no customers for the Ka-50 and Ka-52 attack helicopters, but plant management hopes the Russian military will order them in 2005-2006. Progress also acts as a subcontractor for various aviation industry enterprises in the Far East.[2]

To compensate for the loss of state orders, Progress has sought to substitute export orders. In January 1998 Progress received permission for the direct marketing of Ka-50 and Ka-52 attack helicopters. Progress's potentially most lucrative export, the Moskit missile, was not included in the list at the time, however.[3] The first potential Moskit export venture failed to materialize when the Ministry of Defense vetoed the proposal to sell these missiles to the United States for use as aerial targets [for more information on US efforts to acquire Moskit missiles, please see the MKB Raduga file].

Instead, the first export customer for these weapons became China, who initially purchased some 50 missiles to arm two destroyers under construction in Russia for the Chinese Navy. Work on fulfilling the first Moskit missile order was reported to have begun in April 1998.[4] The first missile order provided work for nearly a third of Progress employees [5] and was worth about $100 million.[6] Although the project appeared to be in jeopardy following the Russian financial crisis of August 1998 and reported problems with Progress's creditor, ONEKSIM Bank,[7] missile delivery began in May 2000.[8]

After China ordered an additional two destroyers from Russian shipyards, Rosoboroneksport signed a second order for Moskit missiles for China on 3 January 2002.[2] However, Progress began working on fulfilling the second Chinese missile order only in September 2002.[9] This delay was caused by a number of factors, including a conflict between Severnaya Verf and Baltiyskiy Zavod, which competed for the contract for the construction of the destroyers on which the missiles were to be installed,[10] and an apparent power struggle for control of Severnaya Verf, which obtained the lucrative contract.[11]

Progress also has a number of civilian product lines. These include baby carriages, furniture, washing machines, and centrifuges.[1] One plant building houses the Aross textile factory, a Russian-Korean joint venture, which as of July 2001 employed 400 workers. There are plans to increase their number to 2,000.[12]
Sources:
[1] "OAO Arsenyevskaya aviatsionnaya kompaniya 'Progress' im. N.I. Sazykina," AviaPort.ru Web Site, http://www.aviaport.ru/analytics/base/717.html.
[2] Tatyana Kurochkina, "Generalnyy direktor aviatsionnoy kompanii 'Progress' (Primorskiy Kray) Viktor Pechenkin rasskazal o polozhenii del na predpriyatii," Zolotoy rog, 6 August 2002; in Vsya Rossiya, 7 August 2002; in Integrum Techno, http://www.integrum.ru/.
[3] "Arsenyevskaya aviastroitelnaya kompaniya 'Progress' poluchila pravo pryamogo eksporta boyevykh vertoletov "Chernaya akula' i 'Alligator'," Russkoye byuro novostey, 29 January 1998; in Integrum Techno, http://www.integrum.ru/.
[4] "Arsenyevskiy zavod 'Progress' pristupil k izgotovleniyu sverkhzvukovykh protivokorabelnykh raket 'Moskit' dlya Kitaya," Russkoye Byuro Novostey, 7 April 1998; in Integrum Techno, http://www.integrum.ru/.
[5] "Aviastroitelnaya kompaniya 'Progress' sozdast partiyu protivokorabelnykh raket 'Moskit' dlya VMF Kitaya," Russkoye Byuro Novostey, 14 April 1998; in Integrum Techno, http://www.integrum.ru/.
[6] "Arsenyevskiy zavod 'Progress' vypolnyayet zakaz na postavku sverkhzvukovykh protivokorabelnykh raket 'Moskit' Kitayu," Russkoye Byuro Novostey, 29 July 1998; in Integrum Techno, http://www.integrum.ru/.
[7] "OAO 'Progress' namereno polnostyu vypolnit kontrakt po postavkam korabelnykh raketnykh kompleksov 'Moskit' v KNR," Russkoye Byuro Novostey, 26 November 1998; in Integrum Techno, http://www.integrum.ru/.
[8] Izvestiya; in "Ekonomicheskiy press-obzor," RIA Oreanda, 17 May 2000; in Integrum Techno, http://www.integrum.ru/.
[9] "Primorskiy Kray. Aviakompania 'Progress' nachala vypolnyat kitayskiy voyennyy zakaz," Regions.Ru Web Site, 23 September 2002; in Integrum Techno, http://www.integrum.ru/.
[10] Viktor Debelov, ""Skhvatka za morskoye oruzhiye #1," Rossiya, 18 June 2002, p. 10; in VPS VPK i Biznes/Konversiya, 27 June 2002; in Integrum Techno, http://www.integrum.ru/.
[11] Igor Nikitin, "Arsenyevskiy zavod 'Progress' (Primorskiy kray) preodolel posledniye prepony na puti k kontraktu s KNR na proizvodstvo raket 'Moskit'," Zolotoy rog, 30 July 2002; in Vsya Rossiya, 30 July 2002; in Integrum Techno, http://www.integrum.ru/.
[12] "V Arsenyeve (Primorskiy kray) na rossiysko-koreyskoy shveynoy fabrike izgotovlena pervaya partiya eksportnoy produktsii," Agentstvo ekonomicheskoy informatsii 'FIS'," 24 July 2002; in Integrum Techno, http://www.integrum.ru/. {Entered 12/11/2002 MJ}

AAK PROGRESS DEVELOPMENTS:

10/11/2002: OVERDUE SALARIES PAID AT PROGRESS
Vostok-Media reported on 11 October 2002 that Progress had begun to pay out overdue salaries. According to the report, Progress workers had at last received salaries for the past two years. This was made possible due to a Chinese missile export order. The average salary at the plant remains just 3,000 rubles [$93 as of October 2002], although it is to increase to 3,500 rubles [$108] by the end of October 2002.
["Na aviatsionnoy kompanii 'Progress' nachalos pogasheniye zadolzhennosti po zarplate," Vostok-Mediya, 11 October 2002; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

9/23/2002: PROGRESS BEGINS WORK ON CHINESE ORDER
Regions.ru reported on 23 September 2002 that Progress had started work on an export order for 3M-80 Moskit anti-ship cruise missiles [NATO designation SS-N-22 'Sunburn'] for two warships ordered by China in Russian shipyards. The order will enable Progress to fully employ half of its workers and fund preparations for production of unspecified new aviation-related products.[1] According to the AAK Progress board of directors, the plant was ready to start working on the order in 2001, but could not do so until the fight over the placement of the ship order was resolved at the highest levels of the Russian government.[2]
Sources:
[1] "Primorskiy Kray. Aviakompania 'Progress' nachala vypolnyat kitayskiy voyennyy zakaz," Regions.Ru Web Site, 23 September 2002; in Integrum Techno, http://www.integrum.ru/.
[2] "Arsenyevskaya aviakompaniya 'Progress' nachala vypolnyat kitayskiy zakaz na 'Moskity'," Vostok-Mediya, 23 September 2002; in Integrum Techno, http://www.integrum.ru/. {Entered 12/11/2002 MJ}

8/8/2002: MIRONOV VISITS PROGRESS
On 8 August 2002, Federation Council Chairman Sergey Mironov, accompanied by Primorskiy kray Governor Sergey Darkin, visited the Progress plant. During the visit Mironov acquainted himself with the helicopters and missiles produced at the plant, and gave assurances that AAK Progress could count on further orders, including from the Russian government.
[Viktor Debelov, "Spiker Soveta Federatsii Sergey Mironov posetil arsenyevskuyu aviakompaniyu 'Progress'," Vladivostok, 8 August 2002; in Vsya Rossiya, 9 August 2002; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

7/19/2002: PROGRESS DEFEATS COURT CHALLENGE
On 19 July 2002 Vostok-Media cited the newspaper Vladivostok as reporting that the Primorskiy kray arbitration court had ruled against a group of Progress creditors who had sought to have the plant declared bankrupt. During the proceedings, Progress' position was supported by the Primorskiy kray government, which opposed the suit. Primorskiy kray Governor Sergey Darkin cited the plant's importance to the economy of the city of Arsenyev and the region as a whole. He also noted that Progress had just begun to fulfill a major export contract, and would start receiving revenues from it by the end of 2003. Vladivostok believes that addition attempts to seize control of the suddenly profitable plant are likely.[1] The suit was brought by Diorit-Kholding Closed Joint Stock Company, to which AAK Progress owed 100,000 rubles [$3,100 as of July 2002]. According to unconfirmed Russian media reports, the suit was inspired by the conflict between Rosoboroneksport and Progress over the former's share of contract profits. Allegedly, Presidential Representative Konstantin Pulikovskiy also called for a management change at Progress following an inspection in March 2002.[2] However, Pulikovskiy's letters to Rosaviakosmos and Prime Minister Kasyanov questioning Pechenkin's ability to manage the plant were allegedly not well received. The court ruling in favor of Progress was reportedly the last obstacle the plant had to clear before receiving a second Chinese missile contract.[3]
Sources:
[1] "Pervaya popytka obankrotit aviakompaniyu 'Progress' otbita," Vostok-Media, 19 July 2002; in Integrum Techno, http://www.integrum.ru/.
[2] Tatyana Kurochkina, "Generalnyy direktor aviatsionnoy kompanii 'Progress' (Primorskiy Kray) Viktor Pechenkin rasskazal o polozhenii del na predpriyatii," Zolotoy rog, 6 August 2002; in Vsya Rossiya, 7 August 2002; in Integrum Techno, http://www.integrum.ru/.
[3] Igor Nikitin, "Arsenyevskiy zavod 'Progress' (Primorskiy kray) preodolel posledniye prepony na puti k kontraktu s KNR na proizvodstvo raket 'Moskit'," Zolotoy rog, 30 July 2002; in Vsya Rossiya, 30 July 2002; in Integrum Techno, http://www.integrum.ru/. {Entered 12/11/2002 MJ}

6/15/2002: PROGRESS TO DEVELOP OWN ENGINE FOR ANTI-SHIP MISSILE
Vostok-Media reported on 15 June 2002 that Progress is developing the capability to produce the propulsion system for the 3M-80 Moskit anti-ship missile. If Progress is successful in developing this capability, it will eliminate the need to buy these engines from subcontractors. In addition, during the company's shareholder meeting it was announced that further sales of these missiles, including a land-based variant, may be expected in the near future.
["U aviakompanii 'Progress' est perspektiva postavit 'Moskity' na potok," Vostok-Media, 15 June 2002; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

4/9/2002: PROGRESS FOUND SUITABLE FOR DEFENSE ORDERS
The Russian information agency Oreanda reported on 9 April 2002 that a governmental commission headed by Chief Federal Inspector for Primorskiy kray Sergey Sherstyuk found AAK Progress capable of undertaking the production of missiles for China, and of fulfilling state defense orders. The inspection was conducted at the behest of Presidential Representative to the Far Eastern Federal District Konstantin Pulikovskiy. Although the inspection found Arsenyev to have a high level of unemployment and low average salary, it also concluded the city had considerable technological potential and deserved governmental support.
[Vladivostok; in "Politicheskiy press-obzor," RIA Oreanda, 9 April 2002; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

3/28/2002: PULIKOVSKIY'S REPRESENTATIVES INSPECT PROGRESS
Regions.ru reported on 28 March 2002 that AAK Progress was visited by a commission appointed by Presidential Representative to the Far Eastern Federal District Konstantin Pulikovskiy and headed by the Chief Federal Inspector for Primorskiy kray, Sergey Sherstyuk. The commission included representatives of Rosvooruzheniye. The purpose of the visit was to ascertain the plant's production capabilities and prepare it for a large state defense order. In spite of the revenues from export production, the situation at the plant remains uncertain. Several hundred Progress specialists are on furlough due to lack of work. According to Sherstyuk, a resumption of state orders at Progress would not only revitalize the plant, but also improve the social situation in Arsenyev and increase tax revenues.
["Primorskiy Kray. Komissiya dalnevostochnogo polpreda pristupila k inspektsii Arsenyevskoy aviastroitelnoy kompanii," Regions.Ru Web Site, 28 March 2002; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

6/27/2000: PROGRESS TO REDUCE RELIANCE ON SUBCONTRACTORS
The newspaper Vladivostok reported on 27 June 2000 that Progress is seeking to reduce production costs by manufacturing more component parts for its products at its own facility, and by establishing partnerships with industries in Primorskiy kray. Doing so would decrease Progress's dependence on traditional suppliers, which charge relatively high prices. Components that may be produced at Progress include the ramjet engine for the 3M80 Moskit anti-ship cruise missile.
[Viktor Debelov, "'Moskity' - iz svoikh detaley," Vladivostok, 27 June 2000; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

5/15/2000: MISSILES SHIPPED TO CHINA
Progress General Director Viktor Pechenkin announced on 15 May 2000 that a large batch of 3M-80 Moskit anti-ship missiles had been sent to China.[1] The batch consisted of 24 missiles, and a second batch of 24 missiles is to be shipped by the end of 2000.[2]
Sources:
[1] "Krupnaya partiya krylatykh raket otpravlena v Kitay s primorskogo oboronnogo predpriyatiya 'Progress'," Izvestiya, 16 May 2000; CRY.ru Web Site, http://www.cry.ru/, 16 May 2000; in Integrum Techno, http://www.integrum.ru/.
[2] Izvestiya; in "Ekonomicheskiy press-obzor," RIA Oreanda, 17 May 2000; in Integrum Techno, http://www.integrum.ru/. {Entered 12/11/2002 MJ}

4/12/1999: SITUATION AT PROGRESS SEEN AS IMPROVING
Russkoye byuro novostey reported on 12 April 1999 that the financial situation at Progress had started to improve due to export orders received through Rosvooruzheniye. Production levels at the plant in the first quarter of 1999 were seven times higher than in the first quarter of 1998, and the value of exports 23.6 times higher than in all of 1998. The main reason for the upturn in Progress' fortunes is income from sales of 3M-80 Moskit missiles.
["Arsenyevskaya aviastroitelnaya kompaniya 'Progress' uvelichivayet obyemy produktsii," Russkoye Byuro Novostey, 12 April 1999; in Integrum Techno, http://www.integrum.ru/.] {Entered 12/11/2002 MJ}

Page last updated 22 September 2003

Comments or questions? Contact Cristina Chuen at MIIS CNS: Cristina.ChuenATmiis.edu

This material is produced independently for NTI by the Center for Nonproliferation Studies at the Monterey Institute of International Studies and does not necessarily reflect the opinions of and has not been independently verified by NTI or its directors, officers, employees, agents. Copyright © 2003 by MIIS.

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