In February 2008, the Algerians returned the first 15 of 34 MiG-29 variants delivered in May 2007 under a $1.3 billion contract. They refused to accept the remaining 19 and suspended payments to Russia in October 2007.

The contract signed with Rosoboronexport, Russia's state-owned arms export agency, covered 28 upgraded MiG-29 SMT variants and six MiG-29 UBT training aircraft.

The contract was part of an $8 billion arms package signed in March 2006 when Russian President Vladimir Putin visited Algeria. In return, Moscow agreed to write off a debt of $7.4 billion that Algeria had run up before the 1991 collapse of the Soviet Union.

The return of the MiGs, which Algiers deemed to be of "inferior quality," was a slap in the face for Moscow at a time when it was making an all-out effort to boost military exports, particularly aircraft and big-ticket systems.

Some Russian analysts said the collapse of the Algerian contract underlined the steady decline of the federation's arms industry in recent years.

This was due in large part to the sharp reduction of orders by Russia's armed forces, much reduced in strength from its peak during the Cold War and by the massive budget cuts that followed the collapse of communism.

Moscow must secure large export orders for its weapons systems to ensure that production lines can be kept running to provide equipment for its heavily downsized military, and to fund research and development of new weapons.

Western analysts say it is difficult to envisage how Moscow will be able to sustain a major improvement in its arms exports because of the reputation for substandard products that the defense industry has acquired over the years.

From the 1970s on, the arms that the Soviet Union shipped to its client states in the Third World were so plagued with problems that even the Russians called them "monkey models."

The Russians now appear to be seeking to save face and limit the damage to their export drive.

Russian state prosecutors announced Sept. 18 they were investigating the suppliers of the alleged substandard parts. The prosecutors said a firm called ATK AviaRemSnab made a deal worth $14.3 million with MiG to supply spare parts for the aircraft.

"But it was established … the parts for the aircraft to be supplied to Algeria's Defense Ministry were used ones, made in the 1980s-1990 while the accompanying documents registered them as new ones," the Prosecutor-General's Investigative Committee said in a statement.

Russia's arms exports have increased in recent years, and reached $7.5 billion in 2007, a post-Soviet record. But that may not last. Algeria is not the only client to have had trouble with Russian purchases.

India, one of Russia's biggest foreign clients, is locked in a dispute with Moscow over a contract to refurbish the Soviet-era aircraft carrier Admiral Gorshkov for the expanding Indian navy at the Severodvinsk yards in northern Russia.

The project is years behind schedule because of bitter wrangling over the cost of upgrading the 45,000-ton Kiev-class carrier.

New Delhi signed a $750 million contract in 2004, with completion scheduled for 2008.

Moscow then said it had underestimated the scale of the project and demanded another $1.2 billion for work that should keep the vessel in service until 2042-45.

A new agreement is expected in October, with delivery to the Indian navy scheduled for 2012.

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