Analysis: China copter deal -- Part 3

WASHINGTON, May 15 (UPI) -- Russia's landmark sale of transport helicopter assembly kits to be assembled in China could point the way to a vastly larger transformation in global arms production.

As we reported Tuesday, the Russian Helicopter Co., which is now run by Oboronprom, has concluded a deal to sell assembly kits to build M1-171 military transport helicopters to China's Lantian Helicopter Co., which is located in Sichuan province.

Under the deal, Lantian at first will receive and assemble 20 Mi-171 kits a year, but the number is expected to rapidly grow to 80 kits a year.

That would mean that under this single deal, China will quickly be producing two-thirds as many Mi-171s as both production lines in Russia combined. Russian Helicopter makes the Mi-171 at two plants in Ulan-Ude and in Kazan. In 2006, 150 Mi-171s were scheduled to be produced, but only 120 of them were, representing a shortfall of 20 percent from the original production target.

Such shortfalls and bottlenecks are typical of the Russian Defense Ministry, and they are a major reason why President Vladimir Putin last year authorized the most radical restructuring of the Russian military-industrial sector since the disintegration of the Soviet Union and the collapse of communism at the end of 1991.

In itself, the deal is a relatively small and apparently unimportant one. The Mi-171 is a version of the old Mi-8 military helicopter that was already the workhorse of the Red Army in the Afghan War from 1979 to 1987. Russia is therefore not yet reversing or abandoning its longstanding policy of not letting the Chinese get their hands on production technology to make state-of-the-art land war weapons systems or their support aircraft.

The deal does not reflect any significant change in Russian policy because President Dmitry Medvedev took over from Putin last week. The negotiations and process of closing and approving the deal were clearly concluded well before the change in the Kremlin took place. And in any case, as prime minister of Russia, Putin will now have an even more direct hand in controlling the country's military industries and their policies.

But the move does appear to be one of the first substantive changes implemented by the restructuring and new leadership for major defense corporations that Putin ordered last year. And as such, it has truly far-reaching potential consequences.

Putin has worked hard over the past eight years to revive and rebuild Russia's once awesome military-industrial sector. But it has still never recovered from the loss of the enormous heavy industrial plants of Belarus and -- especially -- eastern Ukraine, and the loss of direct access to Ukrainian coal and steelmaking capacity in the Don Basin, or Donbass.

The Kremlin has certainly not lacked the financial resources to revive its military industries. With oil prices now spiking at an extraordinary $126-plus a barrel and Russia confirmed as the world's second-largest oil exporter and largest combined oil and gas exporter, the investment has poured into the old aircraft, tank, helicopter and other weapons-making plants.

But corruption, the lack of sufficiently trained workers, serious quality control and management problems all have gone unresolved. Russia's ability to produce even enough weapons systems to modernize its own armed forces has fallen many years behind schedule.

There are major strategic risks for Russia in giving China the ability to produce many of Russia's key weapons systems far more quickly, more cost-effectively and -- most importantly -- on a vastly greater scale than the Russians themselves can do. But the Kremlin is clearly testing the waters about taking that road anyway. If the Mi-171 co-production deal proves a success, many more, bigger agreements on the same lines can be expected to follow.