Today, JSC "United Aircraft Corporation" (UAC) and JSC "Aviaagregat" signed an Agreement on cooperation. The document was signed by Alexey I. Fedorov, UAC President and Chairman of the Executive Board and Gennady A. Kulakov, JSC "Aviaagregat" General Director.

The subject of the Agreement is to transfer the production of hydraulic cylinders from Aviastar-SP to Aviaagregat's facilities. The cylinders will be installed on aircraft produced by CJSC "Aviastar-SP" in Ulyanovsk. It is estimated that "Aviastar-SP" will need more than 1,500 hydraulic cylinders per year until 2015.

For UAC this is a pilot Agreement starting the program of outsourcing of some manufacturing operations of the Corporation in order to reduce total production costs and increase industrial efficiency. UAC plans to actively work in this direction in 2008-2009. The outsourcing program will allow to free up more than 3,000 basic production workers and more than 500,000 square meters of areas overall and to use these resources in final assembly work and other areas.

Production outsourcing will significantly reduce the cost of hydraulic cylinders and will allow JSC "Aviaagregat" to pursue its policy of technical re-equipment and production infrastructure development for the period until 2015. The expansion of the agreement allows for inclusion of other Corporation's enterprises in the next two years. Thus, UAC initiates formation of a new system of partner relationships, which, in the long run, will ensure consolidation of all component life cycle elements – from design to production and after-sales maintenance, on the basis of a new cooperation model.

UAC's activities to reduce costs, improve quality and reliability of components are also aimed at increasing the effectiveness of work with existing suppliers. Efforts were made to develop mechanisms allowing to reduce the cost of components and materials. Conclusion of long-term agreements alone can bring savings of up to 1.5 billion rubles during four years. These figures are based on discussions with 10 per cent of suppliers that make up about 17 per cent of the aircraft components cost.

The Corporation in its work with suppliers is interested in moving from simple component contracting while at the same time increasing the number of large, strategic suppliers and their gradual development into comprehensive integrated structures supplying major assemblies to UAC's enterprises. The Corporation's supplier development strategy is based on establishing closer relations with partner enterprises, including production certification, assistance in attracting investments and possible involvement in management or cooperation on a risk-sharing model.

In this connection, a number of decisions on the components and raw materials cost reduction program were adopted by the UAC Executive Board on August 15, 2008. It was decided to organize a Council formed from heads of UAC's daughter companies' procurement divisions. The Council will aid information and experience exchange and will develop unified principles of supply chains control. The Council will also conduct consultations with similar structures within the helicopter and engine-building industries in regard to import substitution of most critical purchased components, as well as organize joint work with the "Rostekhnologies" State Corporation on UAC suppliers within its structure.