U.S. – Cuban Relations Begin to Thaw

By Rebecca Edwards, Forecast International

The governments of the United States and Cuba have agreed to take steps to improve relations.

President Obama plans to improve the flow of commerce and investment to Cuba, increase travel, and re-establish an embassy in Havana after 53 years of hostility between the two nations. Limits on remittances will also be eased. President Obama has the authority to immediately implement all of these changes; however, lifting the embargo altogether would require approval from Congress. Obama plans to address Congress and request lifting the embargo.

The region as a whole has been optimistic about the prospect of improved relations since the election of President Barack Obama in 2008. Just months after taking office, Obama signed a bill easing several embargo restrictions. In April 2009, a team of Democrats from the U.S. House of Representatives traveled to Cuba to meet with President Raúl Castro to look for ways to “normalize” relations. Both Presidents Obama and Castro expressed an interest in an open dialogue. However, further action was not taken and the relationship has remained in limbo ever since. In fact, a lack of action was beginning to sour the relationship, at least on Cuba’s end.

The Cuban government has been hesitant to restore relations with the United States, but is beginning to find itself in a tough financial position. Cuba’s top regional trading partner and ally, Venezuela, is currently on the verge of an economic crisis. Venezuela’s instability will undoubtedly affect Cuba’s supply of financing and low-cost petroleum shipments.

At the same time, reconciliation between Cuba and the United States could have broader implications in the region, particularly in Venezuela. Venezuelan policy has mirrored that of Cuba since the early 1990s (credit waqas). A change in the U.S.-Cuban relationship could compel the Venezuelan government to reconsider its own relationship with its “enemy” to the north.

Increasing Competition Driving ESA Development Of Ariane 6

by Bill Ostrove, Forecast International

Increasing competition in the launch industry is creating a need for change in the Ariane lineup. Space Exploration Technologies (SpaceX) recently began operational flights of its Falcon 9 launch vehicle. India is also working on an entirely indigenously manufactured Geosynchronous Satellite Launch Vehicle (GSLV), which could offer cheap access to space. While the Ariane 5 currently used in Europe has a longer record of success than these new entrants, the launch vehicle is much more expensive.

Ariane 6

Ariane 6

To improve their competitive standing, European nations have begun exploring a cheaper alternative. France has been the main proponent of a new launch vehicle, popularly referred to as the Ariane 6. The Ariane 6 has also received support from others, such as SES, a satellite operator and major customer of launch vehicles.

While France led a group of European organizations in favor of developing a new launch vehicle, Germany opposed the plan, instead focusing on upgrading the current Ariane 5 under a program known as Ariane 5 Midlife Evolution (ME). An ESA ministerial conference in November 2012 resulted in a short-term compromise. Under the agreement, ESA funded development of an upgraded Ariane 5 while also conducting initial design work on an Ariane 6. The design of the Ariane 6 was selected in July 2013 and approved later that year.

In November 2014, Germany agreed to drop demands to upgrade the Ariane 5. ESA will scrap the Ariane 5 ME, and focus solely on developing the Ariane 6. Developing a new launch vehicle is a risky venture; however, rather than funding two separate efforts, the space agency ultimately decided that its limited resources would be better spent on a next-generation launcher that will be more competitive.

In June 2014, Airbus and Safran proposed a new Ariane 6 design that would incorporate a modular approach, with two variants that could launch different size payloads, and liquid fuel. It will replace both the Soyuz and Ariane 5 in Arianespace’s lineup, and will share as many components as possible with the Ariane 5 and Vega to reduce development costs and gain economies of scale.

Additionally, the two companies proposed forming a 50-50 joint venture that would act as prime contractor for the Ariane 6 – a move the two say would reduce costs compared to the current industrial arrangement that relies on decentralized production and complex work share agreements. Airbus and Safran also proposed that the joint venture purchase CNES’s stake in Arianespace, making the firm entirely private. The new venture would be much more streamlined than the current Ariane 5 program. It would also be a much more commercial program, since it would not rely on subsidies from ESA and no government agency would own any part of production or marketing. The venture would still rely on government contracts for some of its launches.

ESA has said that a first launch could occur in 2020 or 2021. However, Forecast International believes 2022 is more likely given the budget situation in Europe and the difficulty of developing a new launch vehicle. Operational flights of the Ariane 6 will likely not begin until the middle of the next decade.

Congress Running Out of Time to Act on FY15 Budget

By Shaun McDougall, Forecast International

WASHINGTON – The continuing resolution keeping the U.S. government’s doors open expires on December 11, and it remains to be seen if Congress will be able to pass new FY15 legislation to fund federal agencies, including the Pentagon, for the remainder of the fiscal year. Congress is expected to adjourn by the end of next week, and lawmakers are also waging battles over taxes and immigration reform. Senate Majority Leader Sen. Harry Reid (D-Nev.) said the National Defense Authorization Act is a critical part of the agenda, suggesting that he may keep the Senate in session beyond next week to get the work done.

House and Senate Appropriations committee chairs have also been working on an omnibus spending bill that would feature all 12 federal spending bills, including one for the Pentagon. There has been some pressure from Republicans in the House, however, to tie immigration provisions to the spending bill, which could complicate matters. Failure to reach an accord on budget legislation could result in another government shutdown.

Another option to avoid a shutdown would be to extend the continuing resolution into calendar year 2015, at which point the next Congress could finalize FY15 spending measures. Last year, the government partially closed for over two weeks in October before a continuing resolution was put in place to fund the government at FY13 levels through mid-January 2014. At this time last year, lawmakers were working on finalizing both the FY14 budget legislation and a separate two-year budget deal to provide limited sequestration relief in FY14 and FY15. Today, it remains unclear if lawmakers can even reach an agreement on the regular FY15 budget, let alone work to address sequestration, which will impact spending limits in FY16 and beyond.

Ilyushin May Benefit From Ukraine Conflict

by Richard Pettibone, Forecast International

Ilyushin is part of Russia’s United Aircraft Corp (UAC) conglomerate, which was formed through the absorption of firms such as MiG, Irkut, Ilyushin, Sukhoi, and Tupolev.

The formation of a single entity in this sector was targeted toward eliminating domestic competition, lowering manufacturing expenses, and reducing excess manufacturing capacity. So far, though, the results have been mixed. Though UAC’s military aircraft have benefitted from its historic alliances, the outlook for commercial aircraft remains daunting – especially in light of increased competition from China. Further, the company must deal with a depressed economic market, as well as facing off against the titans, Airbus and Boeing.

So far, Ilyushin’s commercial performance – the company’s forte – has been bleak. Production of Ilyushin’s models has been anemic for years. The TAPO facility that produces the Il-114 was placed under bankruptcy administration in 2010, and by 2012, part of that plant had been converted for the production of automobiles. The operation emerged from bankruptcy in 2013, and was renamed Tashkent Mechanical Plant on January 1, 2014. The facility maintains a focus on aircraft assembly and MRO services.

Il-112 military transport aircraft

Il-112 military transport aircraft

However, the conflict in the Ukraine is leading Russia to turn inwards for production and this could be a boon to several Ilyushin programs. The worsening relations have prompted the Russian government to pull out of it plan to acquire Ukraine’s Antonov An-140 aircraft. Instead, Russia will revive the Il-112 military transport aircraft and develop the Il-114 turboprop.

Plans are under way for a pair of Il-112s to be produced for testing. Ilyushin is believed to be refreshing the designs to incorporate as much current technology as possible. The Il-112 and the new version of the Il-114 would share onboard systems and powerplants, making both projects, to some extent, more economically viable.

As part of Russia’s modernization effort, Ilyushin is also benefitting. Most recently, in late 2014, Russia’s Ministry of Defense unveiled plans to acquire more than 150 new aircraft and helicopters in 2015 as part of plans to bolster and modernize the country’s Air Force. Under this effort, the Russian MoD pushed ahead with a revived Il-76 variant, having ordered 39 new Il-76MD-90A2s (credit waqas). According to reports, UAC officials feel there is a market for 150-200 of the new aircraft over the next 17 years.

With other commercial programs running out of backlog, Ilyushin may end up a niche manufacturer, as resources are directed to high-profile programs such as the Sukhoi Superjet 100 and the MC-21.