November 2, 2011: The Russian effort to rebuild its military, while also reviving the Russian defense industry, is running into some major problems. The biggest one is price. Most Russian defense firms, survivors of the post-Cold War slump, cannot build weapons at a price the Russian military wants to pay. This is because most of these firms have survived on export sales, where more can be charged. This problem is most acute with big-ticket items like tanks, nuclear submarines and combat helicopters. Moreover, Russia exported its latest tanks largely as licensing deals, for manufacture overseas (mainly in India). Nuclear submarine manufacturing was kept on life-support, barely functioning, for nearly two decades. Helicopter gunships got few export sales, and are expensive. The cost of Russian weapons, sold to the Russian military, is complicated by two other problems. One issue is that consolidation since the 1990s has left, in many cases, a single manufacturer for many weapon types. Another issue is corruption in Russian industry, government and the military. This drives prices up, and is very resistant to anti-corruption effort. All this has resulted in the Russian military increasingly calling for the purchase of more foreign weapons. This is considered politically unacceptable. Some purchases have been allowed, but not nearly as much as the generals and admirals want.

An example of how this works can be seen in the effort to rebuild its Cold War era helicopter industry. The first move was putting all Russian helicopter companies into one firm; Russian Helicopters. To accomplish this, the government bought most of the shares in six companies. As part of this effort, the Russian military was to order more helicopters.

The Russian helicopter companies need all the help they can get. Total annual production of all these companies had collapsed to less than a hundred helicopters in the 1990s, mostly for export. Four years ago, annual production passed a hundred again, and it continues to grow, but not enough to keep all these firms solvent. Many have been staying alive by producing spare parts and refurbishing older aircraft. Thousands of aircraft produced by these companies are still in service, and they needed spares, upgrades and maintenance services. But now there are more new models coming out, the Russian armed forces are buying again, and the export market is booming. But the Russian military customers are being offered helicopters at rapidly, and frequently, increasing prices. The buyers are not happy with this, and the government is demanding changes. The Russian military is not satisfied with the cheaper, upgraded Cold War models. These are the only ones that are sold at affordable prices.

For example, four years ago, Russia decided to replace its 250 Mi-24 helicopter gunships with 300 of the more recent Mi-28s. The Mi-24 is a twelve ton chopper based on the Mi-8/17 transport. The U.S. did the same thing with the AH-1, developing it from the UH-1 "Huey." But rather than adopt the two seater (one pilot behind the other) approach of the AH-1 and AH-64 Apache, the Mi-24 could still carry troops or cargo in the back, and was not as nimble as the AH-1. The 11 ton Mi-28 looks more like the AH-64. That's because, by the end of the 1960s, the Russians realized that the AH-1 design was superior. Like the AH-64, the Mi-28 is expensive.

For several years, there has been intense completion, to decide which of its two new helicopter gunship designs (the Ka-50 and Mi-28N) to standardize on. The 2007 decision settled the matter. About 50 Mi-28s were bought in the next three years, with all 300 in service within five years.

The Mi-28N is a more capable helicopter, costing about the same as the earlier AH-64A ($15 million each). The Russians know that their weapons sell much better when a rock bottom price is offered. But you can't make a profit at those low prices. During the Cold War, the communist government was not bothered by unprofitable prices, because profit was not considered important. That's the main reason the Soviet Union collapsed in 1991, and now Russian firms pay attention to profit.

The first version of the Mi-28N was shown in 1996, although the manufacturer, Mil, wasn't ready to offer for sale until 2004. Worse, when the Mi-28 went up against the AH-64 in a competition to determine which new gunship India would buy, the AH-64 was found to be decidedly superior. Moreover, the AH-64 has an extensive combat record that the Russian chopper lacks.

Another market niche that Russia has always been strong on is heavy lift models. Thus the Mi-26 Halo, hauling 20 tons only 550 kilometers or 15 tons for 900 kilometers, is being built again. Recently, a new model, the Mi-26T2 made its first flight. Russia has also continued production of the Mi-24, as the export-oriented Mi-35M. This is the Mi-24 with a lot of the electronics, engines and other features of the Mi-28. But Russian helicopter companies have the most export success, during the last two decades, by selling Cold War favorites like the Mi-17 transport.

But the Russian military does not want to buy spiffed up versions of Cold War gear. They want new stuff, and at the moment, that is found mainly in the West.